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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1997
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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GREAT WESTERN
FINANCIAL CORPORATION
(NAME OF SUBJECT COMPANY)
GREAT WESTERN
FINANCIAL CORPORATION
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(INCLUDING THE ACCOMPANYING PREFERRED STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
391442100
(CUSIP NUMBER OF CLASS OF SECURITIES)
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J. LANCE ERIKSON, ESQ.
EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
GREAT WESTERN FINANCIAL CORPORATION
9200 OAKDALE AVENUE
CHATSWORTH, CALIFORNIA 91311
(818) 775-3411
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
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COPY TO:
PETER ALLAN ATKINS, ESQ.
FRED B. WHITE III, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Great Western Financial Corporation, a
Delaware corporation ("Great Western"). The address of the principal executive
offices of Great Western is 9200 Oakdale Avenue, Chatsworth, California 91311.
The title of the class of equity securities to which this Statement relates is
Great Western's common stock, par value $1.00 per share (the "Great Western
Common Stock"), including the accompanying Preferred Stock Purchase Rights (the
"Rights") issued pursuant to the Rights Agreement, dated as of June 27, 1995,
between Great Western and First Chicago Trust Company of New York, as Rights
Agent (the "Great Western Rights Plan"). Except where the context otherwise
requires, all references herein to the Great Western Common Stock shall include
the Rights.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to an exchange offer described in a Registration
Statement on Form S-4 filed with the Securities and Exchange Commission (the
"Commission") on May 13, 1997 (the "Ahmanson Form S-4") by H.F. Ahmanson &
Company, a Delaware corporation ("Ahmanson"), to exchange Ahmanson common stock,
par value $0.01 per share ("Ahmanson Common Stock"), for all of the outstanding
shares of Great Western Common Stock. The Ahmanson S-4 has not yet been declared
effective. According to a preliminary prospectus included in the Ahmanson Form
S-4 (the "Ahmanson Preliminary Prospectus"), Ahmanson intends to offer, upon the
terms and subject to the conditions set forth in the Ahmanson Preliminary
Prospectus and in a related Letter of Transmittal (together, the "Ahmanson
Exchange Offer"), to exchange shares of Ahmanson Common Stock for each
outstanding share of Great Western Common Stock validly tendered on or prior to
the Expiration Date (as defined in the Ahmanson Preliminary Prospectus) of the
Ahmanson Exchange Offer and not properly withdrawn. Each such share of Ahmanson
Common Stock would be entitled to receive shares of Ahmanson Common Stock equal
to the quotient (rounded to the nearest 1/100,000) determined by dividing $50.00
by the average of the high and low sales prices of the Ahmanson Common Stock (as
reported on the New York Stock Exchange Composite Transactions reporting system
as published in The Wall Street Journal or, if not published therein, in another
authoritative source) on each of the twenty consecutive trading days ending with
the third trading day immediately preceding the Expiration Date, subject to a
minimum ratio of 1.10 (which would apply when such average closing price is
$45.45 or above) and a maximum ratio of 1.20 (which would apply when such
average closing price is $41.67 or below).
According to the Ahmanson Preliminary Prospectus, Ahmanson intends, as soon
as practicable after consummation of the Ahmanson Exchange Offer, to seek to
merge Great Western with and into Ahmanson.
According to the Ahmanson Preliminary Prospectus, the principal executive
offices of Ahmanson are located at 4900 Rivergrade Road, Irwindale, California
91706.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of Great Western, which is the person
filing this Statement, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
Great Western or its affiliates and certain of Great Western's directors and
executive officers ("Compensation Arrangements") are described on pages 17-33 of
the proxy statement (the "Annual Meeting Proxy Statement"), dated May 12, 1997,
sent by Great Western to its stockholders in connection with Great Western's
Annual Meeting of Stockholders scheduled to be held on June 13, 1997 (the
"Annual Meeting"). A copy of these pages of the Annual Meeting Proxy Statement
is filed as Exhibit 1 hereto and is incorporated herein by reference. Additional
Compensation Arrangements are described under the heading "The Washington
Mutual/Great Western Merger -- Interests of Certain Persons in the Washington
Mutual/Great Western Merger" at pages 70-75 in the Joint Proxy
Statement/Prospectus of Great Western, dated May 13, 1997 (the "Joint Proxy
Statement/Prospectus"), sent by Great Western to its stockholders in connection
with Great Western's Special Meeting of Stockholders also scheduled to be held
on June 13, 1997. A copy of these pages of the Joint Proxy Statement/Prospectus
is filed as Exhibit 2 hereto and is incorporated herein by reference.
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The consummation of the Ahmanson Exchange Offer on the terms described in
the Ahmanson Preliminary Prospectus would constitute a Change in Control (as
defined on page 5 of Exhibit 1) for purposes of the Compensation Arrangements.
Except as described herein or in Exhibit 1 and Exhibit 2 hereto, to the
knowledge of Great Western, as of the date of this Schedule 14D-9, there are no
material contracts, agreements, arrangements or understandings, or any actual or
potential conflicts of interest, between Great Western or its affiliates and (i)
Great Western, its executive officers, directors or affiliates or (ii) Ahmanson
or its executive officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) and (b). On March 5, 1997, Great Western, Washington Mutual, Inc.
("Washington Mutual") and New American Capital, Inc., a wholly owned subsidiary
of Washington Mutual ("NACI"), entered into an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which, subject to the satisfaction or waiver of
certain conditions, Great Western will be merged with and into NACI (the
"Washington Mutual/ Great Western Merger"). The Merger Agreement is filed as
Exhibit 3 hereto and is incorporated herein by reference. At the effective time
of the Washington Mutual/Great Western Merger, (i) each outstanding share of
Great Western Common Stock will be converted into the right to receive 0.9
shares (the "Exchange Ratio") of Washington Mutual common stock, with cash being
paid in lieu of fractional shares, and (ii) each outstanding share of Great
Western preferred stock will be converted into a share of Washington Mutual
preferred stock with substantially identical terms, preferences, limitations,
privileges and rights.
AS MORE FULLY DESCRIBED BELOW, THE GREAT WESTERN BOARD, BY UNANIMOUS VOTE
OF THOSE DIRECTORS PRESENT, HAS RECOMMENDED THAT GREAT WESTERN STOCKHOLDERS
REJECT THE AHMANSON EXCHANGE OFFER AND, IF AND WHEN SUCH OFFER IS COMMENCED, NOT
TENDER THEIR SHARES OF GREAT WESTERN COMMON STOCK PURSUANT TO THE AHMANSON
EXCHANGE OFFER. THE GREAT WESTERN BOARD, BY UNANIMOUS VOTE OF THOSE DIRECTORS
PRESENT, HAS ALSO REAFFIRMED ITS DETERMINATION THAT THE TERMS OF THE WASHINGTON
MUTUAL/GREAT WESTERN MERGER ARE FAIR TO, AND IN THE BEST INTEREST OF, GREAT
WESTERN AND ITS STOCKHOLDERS.
On the evening of February 17, 1997, Charles R. Rinehart, Chairman of the
Board and Chief Executive Officer of Ahmanson, telephoned John F. Maher,
President and Chief Executive Officer of Great Western, with a request to meet
that evening to discuss a merger of Ahmanson and Great Western. Mr. Maher
declined to meet and informed Mr. Rinehart that such a meeting could take place
only after Mr. Maher discussed the matter with the Great Western Board and Great
Western's management and legal and financial advisors. The conversation between
Mr. Maher and Mr. Rinehart was the first regarding a potential merger of the two
companies since October 1995, when Mr. Maher informed Mr. Rinehart that a Great
Western and Ahmanson combination did not advance the strategic objectives of
Great Western or the interests of its stockholders and that, therefore, Great
Western was not interested in pursuing a business combination with Ahmanson.
Following his February 17, 1997 telephone call, Mr. Rinehart delivered a letter
to Mr. Maher outlining a proposed transaction (the "Original Ahmanson Proposal")
whereby Great Western would be merged with and into Ahmanson in a tax-free
transaction to be accounted for as a purchase. Under the terms of the Original
Ahmanson Proposal, each share of Great Western Common Stock would have been
exchanged for 1.05 shares of Ahmanson common stock. Prior to the receipt of the
Original Ahmanson Proposal, Great Western had not been considering a business
combination, strategic or otherwise, with any third parties.
On the morning of February 18, Ahmanson issued a press release describing
the Original Ahmanson Proposal and held an analyst conference call to discuss
its views as to the merits of such proposal. Also that morning, Ahmanson filed
with the Commission preliminary solicitation materials relating to a consent
solicitation by Ahmanson in favor of an amendment to Great Western's By-Laws and
a non-binding stockholder resolution and to a proposed proxy solicitation by
Ahmanson in connection with Great Western's annual meeting of stockholders
seeking the adoption of additional by-law amendments and the election of three
Ahmanson-nominated directors to the Great Western Board.
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On the same day, Kerry K. Killinger, Chairman, President and Chief
Executive Officer of Washington Mutual, called Mr. Maher and indicated that he
was following developments at Great Western and would be open to discussions
with Mr. Maher if the Great Western Board determined that discussions were
appropriate. Later that day, the Washington Mutual Board of Directors (the
"Washington Mutual Board") met for its regularly scheduled meeting. At that
meeting, Mr. Killinger discussed the Original Ahmanson Proposal with the
directors. After the Washington Mutual Board meeting, Mr. Killinger had
additional discussions with certain members of the Washington Mutual Board. The
chief executive officer of a large super-regional bank (the "Other Interested
Party") also called Mr. Maher that day to express similar interest. Mr. Maher
informed both parties that the management of Great Western would need time to
consult with the Great Western Board and its advisors in order to assess the
situation.
On the evening of February 18, the Great Western Board held a telephonic
board meeting during which Mr. Maher discussed the receipt of the Original
Ahmanson Proposal as well as the other actions taken by Ahmanson. Mr. Maher
informed the Great Western Board of the two indications of interest that he had
received that day. Representatives of Goldman, Sachs & Co. ("Goldman Sachs") and
Merrill Lynch & Co. ("Merrill Lynch"), Great Western's financial advisors, and
of Skadden, Arps, Slate, Meagher & Flom LLP, Great Western's special counsel,
participated in the call. At such meeting, no action was taken by the Great
Western Board with respect to the Original Ahmanson Proposal or with respect to
the other two indications of interest.
Later that week, Mr. Maher separately responded to both Mr. Killinger and
the chief executive officer of the Other Interested Party. Mr. Maher stated
that, as a condition to further discussions with Great Western, each party would
be required to enter reciprocal confidentiality/standstill agreements. Mr. Maher
also asked Washington Mutual and the Other Interested Party to submit
preliminary due diligence request lists. Mr. Maher indicated that he would be
meeting with the Great Western Board on the following Monday and, depending on
the outcome of those discussions, there might be an opportunity for the
interested parties to visit Great Western and conduct due diligence later in
that week. Neither Mr. Maher nor any other members of Great Western management
or Great Western's financial advisors contacted any representatives of Ahmanson.
On February 20, Mr. Killinger discussed developments with certain members
of the Washington Mutual Board. On February 21, Washington Mutual and Great
Western entered into a reciprocal confidentiality/standstill agreement and
thereafter the parties exchanged confidential information regarding the
businesses and operations of the two companies and their respective
subsidiaries. Also on February 21, Great Western and the Other Interested Party
entered into a reciprocal confidentiality/standstill agreement.
Over the course of the week of February 17, Great Western's management and
its financial advisors received inquiries from a few other potentially
interested parties. These parties expressed interest in discussing possible
transactions with Great Western, ranging from business combinations to the
acquisition of only certain of Great Western's business lines or operations.
However, none of the parties received confidential information, none of the
discussions with any of these parties proceeded to a stage where confidentiality
agreements were signed, and no formal indications of interest were ever
received.
On February 24, the Great Western Board met with its advisors to consider
and analyze (i) the Original Ahmanson Proposal, (ii) continuing to operate as a
stand-alone entity and to implement the strategic initiatives that had been
previously undertaken to make Great Western more "bank-like," (iii) seeking a
strategic partnership with either a larger or similar-sized bank or thrift
holding company with a similar strategic focus and (iv) other possible
alternative strategies (none of which the Great Western Board chose to pursue)
for enhancing shareholder value, including the sale or spin-off of certain of
Great Western's business lines and operations. After consideration of each of
these alternatives, the Great Western Board determined that, in light of recent
events and the value that each alternative could potentially yield, the best
possible course for enhancing stockholder value would be to pursue a strategic
business combination. Accordingly, the Great Western Board authorized the
management of Great Western to pursue strategic business combinations and not to
pursue any of the other alternatives considered.
Mr. Maher called Mr. Killinger after the meeting of the Great Western Board
and invited Washington Mutual to undertake a due diligence investigation of
Great Western and to present a proposal for discussion on
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March 3. On that same day, Mr. Maher extended the same offer to the chief
executive officer of the Other Interested Party.
During the week of February 24, Great Western's financial advisors made
inquiries, on behalf of Great Western, of other potential strategic partners who
had not previously contacted Great Western, although no formal proposals were
made as a result of such inquiries.
On February 25, the Other Interested Party commenced its due diligence
investigation of Great Western and reviewed both public and non-public
information concerning the business and operations of Great Western. This
investigation lasted for two days. On March 2 and March 3 the Other Interested
Party conducted further due diligence on Great Western.
On February 26, Mr. Killinger traveled to California, where he met with Mr.
Maher and discussed Great Western's operating progress, operating philosophies
and objectives and the potential strategic benefits of a combination between the
two companies. That same day, Washington Mutual began its on-site due diligence
investigation of Great Western.
From February 26 through March 1, members of Washington Mutual's officers'
executive committee, other members of management, a due diligence team composed
of representatives of different operational areas of Washington Mutual and
Washington Mutual's advisors continued their intensive, on-site due diligence
investigation of Great Western.
On February 27, Great Western's legal advisors delivered a form of merger
agreement to Washington Mutual and to the Other Interested Party and to each of
their respective legal advisors.
On March 3, Mr. Killinger and Mr. Craig E. Tall, Washington Mutual's
Executive Vice President of Corporate Development, as well as certain
representatives from Foster Pepper & Shefelman and Lehman Brothers, Washington
Mutual's respective legal and financial advisors, traveled to Great Western's
executive offices in Chatsworth, California. There they met with Messrs. James
F. Montgomery, Chairman of the Board; John F. Maher; Carl F. Geuther, Vice
Chairman and Chief Financial Officer; A. William Schenck, Vice Chairman; J.
Lance Erikson, Executive Vice President and General Counsel; other members of
the Great Western management team; and representatives from Goldman Sachs and
Merrill Lynch, financial advisors to Great Western. The meeting consisted
primarily of a presentation by Mr. Killinger of the background and current
status of Washington Mutual, a preliminary transaction proposal and exchange
ratio, and a discussion of the possible benefits of a merger of Washington
Mutual and Great Western.
That same day, the Other Interested Party made a similar presentation to
the Great Western directors and executive officers listed above and indicated a
preliminary exchange ratio which had an implied value that was less than the
then current implied value of Washington Mutual's preliminary exchange ratio.
However, the Other Interested Party subsequently informed Great Western that it
would not make a definitive proposal.
Prior to and during the week of March 3, other members of Great Western's
senior management team and representatives of its advisors conducted on-site and
off-site due diligence reviews of Washington Mutual and the Other Interested
Party during which both public and non-public information concerning such
companies was reviewed by Great Western.
On March 4, legal advisors of Great Western and Washington Mutual met for
preliminary discussions of issues raised by Washington Mutual's initial response
to the draft Merger Agreement proposed by Great Western, particularly Washington
Mutual's request for a termination fee and a stock option agreement. Later that
day, representatives of Goldman Sachs and Merrill Lynch telephoned Mr. Killinger
and Mr. Tall and advised them that Great Western was interested in Washington
Mutual's preliminary transaction proposal, but that the proposed exchange ratio
was insufficient. Following that call, Mr. Killinger and Mr. Tall discussed the
status of the negotiations with certain members of the Washington Mutual Board
and, with their concurrence, Mr. Killinger proposed, subject to approval by the
Washington Mutual Board and resolution of all outstanding issues, to increase
the exchange ratio to 0.9 shares of Washington Mutual common stock for each
share of Great Western Common Stock. Washington Mutual and Great Western's
respective legal advisors met the next day to negotiate the Merger Agreement.
At the meetings of the Great Western Board held on March 4 and March 5, the
Great Western Board reviewed, with the assistance of its legal advisors, Great
Western's management and legal and financial
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advisors, among other things, a summary of management's due diligence findings
concerning Washington Mutual, presentations by management and Goldman Sachs and
Merrill Lynch concerning the Washington Mutual proposal and the Original
Ahmanson Proposal, the terms of the definitive Merger Agreement and both Goldman
Sachs' and Merrill Lynch's fairness opinions concerning the Exchange Ratio. At
these meetings, as well as at the above-described meetings, the Great Western
Board specifically considered its obligations under state law with respect to
discussions with Washington Mutual, Ahmanson and others and were advised by
legal counsel. Based upon that review, and after consideration of other factors,
the Great Western Board unanimously approved and authorized the execution of the
Merger Agreement on the evening of March 5. At that meeting, the Great Western
Board rescinded in its entirety Great Western's previously authorized share
repurchase program.
The Washington Mutual Board met on March 5 in person and telephonically to
consider management's proposal for a merger with Great Western. With the
assistance of Washington Mutual's legal and financial advisors, the Washington
Mutual Board reviewed, among other things, management's due diligence findings
concerning Great Western, presentations by management and Lehman Brothers
concerning the merger proposal, the terms of the Merger Agreement and Lehman
Brothers' fairness opinion concerning the Exchange Ratio. Based upon that
review, the Washington Mutual Board, by unanimous vote of all directors present
(with Messrs. Beighle, Bridge and Reed absent), approved and authorized the
execution of the Merger Agreement on the evening of March 5. The Merger
Agreement was executed and delivered by the parties shortly thereafter. Messrs.
Beighle, Bridge and Reed subsequently expressed their approval of the Merger
Agreement.
On March 6, the proposed Washington Mutual/Great Western Merger was
publicly announced.
On March 17, 1997, Ahmanson announced that the Original Ahmanson Proposal
had been revised to contemplate that each outstanding share of Great Western
Common Stock would be converted into the right to receive not less than 1.10 nor
more than 1.20 shares of Ahmanson common stock based upon a floating exchange
ratio (as so revised, the "Ahmanson Proposal").
On March 25, the Great Western Board met with its advisors to consider the
Ahmanson Proposal. On March 26, 1997, Great Western announced that, after
careful consideration of Ahmanson's request that Great Western provide
information to and engage in negotiations or discussions with Ahmanson, the
Great Western Board had unanimously determined not to authorize such actions.
The Great Western Board also stated its belief that a combination of Great
Western and Washington Mutual will provide Great Western's stockholders with a
superior value opportunity and reiterated its strong commitment to the
Washington Mutual/Great Western Merger as being in the best interests of Great
Western's stockholders.
On May 12, 1997, Ahmanson publicly announced that it intended to commence
the Ahmanson Exchange Offer. Ahmanson filed the Ahmanson S-4 the following day.
On May 19, 1997, the Great Western Board met to review, with the assistance
of its legal advisors, Great Western management and Great Western's legal and
financial advisors, the Ahmanson Exchange Offer, which contained the same
financial terms as the Ahmanson Proposal considered by the Great Western Board
at the meeting held on March 25, 1997. For the same reasons the Great Western
Board determined to authorize the execution of the Merger Agreement and not to
authorize negotiations with Ahmanson following the receipt of the Ahmanson
Proposal (which reasons are set forth below), the Great Western Board, by
unanimous vote of those directors present, determined that the Ahmanson Exchange
Offer is not in the best interests of Great Western and its stockholders.
Accordingly, the Great Western Board, by unanimous vote of those directors
present, determined to recommend that Great Western stockholders reject the
Ahmanson Exchange Offer and, if and when such offer is commenced, not tender
their shares of Great Western Common Stock pursuant to the Ahmanson Exchange
Offer. In making its determination, the Great Western Board noted that the
current implied value of the Exchange Ratio was higher than that of the Ahmanson
Exchange Offer for each of the two trading days ended May 19, 1997 and was less
than 2% lower than that of the Ahmanson Exchange Offer for each of the four
trading days ended May 15, 1997. A copy of the letter to Great Western's
stockholders communicating the Great Western Board's recommendation and the
press release relating thereto are filed as Exhibits 4 and 5 hereto and
incorporated herein by reference. A copy of such letter is also attached hereto.
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At its May 19 meeting, the Great Western Board, by unanimous vote of those
directors present, also reaffirmed its determination that the terms of the
Washington Mutual/Great Western Merger are fair to, and in the best interests
of, Great Western and its stockholders. Goldman Sachs and Merrill Lynch
delivered to the Great Western Board their respective opinions, each dated May
19, 1997, that as of such date (i) the Exchange Ratio was fair to the
stockholders of Great Western, in the case of the Goldman Sachs opinion and (ii)
the Exchange Ratio was fair to the stockholders of Great Western from a
financial point of view, in the case of the Merrill Lynch opinion. Copies of
such opinions setting forth the assumptions made, matters considered and review
undertaken are filed as Exhibits 10 and 11, respectively. The full text of each
such opinion is incorporated herein by reference and the foregoing descriptions
thereof are qualified in their entirety by such reference. Copies of such
opinions are also attached hereto and Great Western stockholders are urged to
read such opinions in their entirety.
In reaching its determination to approve and adopt the Merger Agreement, at
meetings of the Great Western Board held on March 4, and March 5, 1997, the
Great Western Board considered the following factors:
(i) the Great Western Board's familiarity with and review of Great
Western's business, operations, financial condition and earnings on both an
historical and a prospective basis, including Great Western's current
strategic initiatives to, among other things, become more like a retail
consumer bank;
(ii) the Great Western Board's review, based in part on presentations
by its financial advisors and Great Western management (which presentations
took into account Washington Mutual's March 3 presentation described
above), of (a) the strategy, business, operations, earnings and financial
condition of Washington Mutual on both an historical and a prospective
basis and (b) the historical stock price performance of the Washington
Mutual common stock. In this regard, the Great Western Board noted that (I)
Great Western and Washington Mutual possess compatible and complementary
corporate cultures and, in recent years, have implemented similar
strategies for enhancing profitability through the reduction of cost of
funds and the development of new sources of revenue, (II) Washington Mutual
has significant market presence in California, Washington, Oregon, Utah
and, to a lesser extent, certain other Western states and that, as a
result, the combined entity of Great Western and Washington Mutual (the
"Combined Company") not only would be able to achieve the same market
position in California (ranked third in deposits) that a merger with
Ahmanson would bring, but would also have more geographically diverse
assets and operations (pro forma at December 31, 1996 the Combined Company
would have approximately 67%, 15%, 13% and 4% of its total deposits located
in California, Washington, Florida and Oregon, respectively) and be less
vulnerable to regional economic fluctuations and regional real estate
market downturns and (III) in contrast to a combination with Ahmanson, the
Combined Company would have (A) a stronger capital position to take
advantage of future growth opportunities (At December 31, 1996, Ahmanson
had a ratio of tangible common equity to total assets of 3.31% (which is
expected to decrease based on Ahmanson's projected share repurchases)
compared to 4.38% for Washington Mutual), and (B) a stronger credit
position (At December 31, 1996, Ahmanson had a ratio of non-performing
assets to net loans plus other real-estate owned of 3.33% compared to 1.46%
for Washington Mutual). The Great Western Board also noted that the Great
Western's stockholders, as owners of approximately 50% of the Combined
Company, would have the ability to realize the benefits of this strategic
business combination (under the terms of the Ahmanson Proposal, Great
Western's stockholders would own approximately 60% of a combined Great
Western/Ahmanson (assuming a maximum exchange ratio of 1.2));
(iii) the Great Western Board's review, based in part on presentations
by its financial advisors and Great Western management, of (a) the
strategy, business, operations, earnings and financial condition of
Ahmanson on both a historical and a prospective basis and (b) the
historical stock price performance of the Ahmanson common stock. In this
regard, the Great Western Board noted that over the course of the past five
years, Ahmanson has experienced relatively flat growth in earning assets
and that loans and deposits have decreased. The Great Western Board also
noted that Ahmanson has pursued different strategies than Great Western,
including a strategy of consolidating its operations in California rather
than attempting to diversify geographic risk. The Great Western Board also
noted that a merger with Ahmanson would hinder many of the initiatives
implemented by Great Western over the past few years in
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order to become more "bank-like" because Ahmanson had only recently begun
to implement a similar strategic focus and the Great Western Board believed
that Ahmanson's efforts in this respect lagged behind those of Great
Western. In particular, the Great Western Board noted that Ahmanson (I) has
had a business strategy that has emphasized, and continues to emphasize,
stock repurchases and other financial strategies rather than core business
growth as a key means of increasing earnings per share and stockholder
value, (II) has, through a systematic program of branch acquisitions and
divestitures, concentrated its operations in California, which
concentration is inconsistent with Great Western's desire to achieve
greater geographic diversification and stands in contrast to the strong
Western United States franchise that a merger with Washington Mutual would
bring and (III) has a higher risk profile with a greater exposure to
multifamily loans and commercial real estate. With respect to the Great
Western Board's observation described in (I) concerning Ahmanson's emphasis
on stock repurchases, the Great Western Board noted the presentation of its
financial advisors which indicated that Ahmanson had repurchased
approximately 14.5% of its outstanding stock at December 31, 1994 over the
course of 1995 and 1996 and had demonstrated relatively flat asset growth
over the same period and that Ahmanson's projected repurchases, as set
forth in the Original Ahmanson Proposal, did not appear to allow for
additional asset growth. The foregoing review by the Great Western Board
was based on publicly available information regarding Ahmanson and the
Great Western Board and management's knowledge of Ahmanson's business and
operations derived from years of competition with Ahmanson in California
and Florida banking markets, and not on any direct face-to-face discussions
with Ahmanson or its representatives;
(iv) the Great Western Board noted that, based on the closing market
prices of the Washington Mutual common stock and Ahmanson common stock on
March 4, 1997, the implied per share value of the Exchange Ratio was $47.87
as compared to the implied per share value of the Original Ahmanson
Proposal of $43.44. The Great Western Board also compared the implied per
share value for the two offers on a historical longer-term basis and noted
that, since July, 1996, the implied value of the Exchange Ratio was always
greater than the implied value of the Original Ahmanson Proposal;
(v) the Great Western Board reviewed commonly-used financial
benchmarks that demonstrated that Washington Mutual had a higher level of
asset quality, higher reserve coverage ratio, higher capital ratios, a
better efficiency ratio (excluding amortization of intangibles and
non-recurring items), a higher net interest margin and a greater rate of
growth in earning assets, loans and deposits. The Great Western Board noted
that Washington Mutual had increased its dividend over the past six
consecutive quarters and, over a longer term, for every year since 1990. In
contrast, the Great Western Board noted that Ahmanson had not increased its
dividend since 1987. The Great Western Board also considered that the
historical pro forma dividend for Great Western's stockholders would be
higher in a merger with Ahmanson than in a merger with Washington Mutual;
(vi) the financial presentation of its financial advisors (including
presentations of pro forma financial information with respect to both the
Washington Mutual/Great Western Merger and a merger of Great Western and
Ahmanson and the implied value of the Exchange Ratio and the initial
exchange ratio proposed by Ahmanson in the Original Ahmanson Proposal over
certain historical periods) and (a) the written opinion of Goldman Sachs
rendered on March 5, 1997 that, as of the date of such opinion, the
Exchange Ratio was fair to the stockholders of Great Western and (b) the
written opinion of Merrill Lynch rendered on March 5, 1997 that, as of the
date of such opinion, the Exchange Ratio was fair to the stockholders of
Great Western from a financial point of view. Copies of such opinions,
setting forth the assumptions made, matters considered and review
undertaken are filed as Exhibits 6 and 7, respectively. The full text of
each such opinion is incorporated herein by reference and the foregoing
descriptions thereof are qualified in their entirety by such reference;
(vii) the Great Western Board compared reported earnings per share and
cash earnings per share on a pro forma per share equivalent basis which,
with the exception of cash earnings per share for 1997, indicated that
higher per share values on an equivalent basis could be realized by the
Combined Company compared to a combination of Ahmanson and Great Western;
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(viii) the anticipated cost savings and operating efficiencies
available to Great Western and Washington Mutual as a combined institution
following the Washington Mutual/Great Western Merger, the potential for
revenue enhancements at the combined institution and the likelihood of
achieving these cost savings, operating efficiencies and revenue
enhancements relative to the likelihood that they could be achieved in a
merger with Ahmanson;
(ix) the anticipated cost savings and operating efficiencies available
to Great Western and Ahmanson as a combined institution following a
combination of the two institutions and the potential for revenue
enhancements at the combined institution. In this regard, the Great Western
Board considered that Ahmanson utilizes an information system which is
outdated and is not compatible with Great Western's, which in turn could
increase the difficulty of implementing the technology conversion required
in such a merger on a timely basis and which would require significant
expenditures. In contrast, Washington Mutual shares common information
systems which should greatly facilitate the integration of the two
companies' operations and the achievement of cost savings and operating
efficiencies at a minimal cost and on a timely basis;
(x) the significant experience of the senior management of Washington
Mutual and its proven record of achieving cost savings, operating
efficiencies and revenue enhancements in connection with the integration of
acquired companies. In particular, the Great Western Board noted that
Washington Mutual's current management team has successfully integrated
numerous significant acquisitions since 1990 and that Washington Mutual had
consummated more than 20 acquisitions over a longer period, including both
in-market and out-of-market acquisitions of banks and thrifts of varying
size. In contrast, Ahmanson's current management team, many members of
which have been hired by Ahmanson within the past several years, has
limited its focus to the acquisitions and divestitures of branches;
(xi) the Great Western Board's concern, based upon presentations by
its financial advisors and Great Western management, that, as a result of
substantial share repurchases (during fiscal 1995 and 1996, Ahmanson is
estimated to have repurchased 14.5% of its total outstanding shares as of
December 31, 1994), Ahmanson's tangible common equity as a percentage of
tangible assets, a ratio that Great Western's financial advisors believe is
generally regarded by the investment community and by bank regulatory
authorities as an indication of the relative capital strength of a
financial institution, was among the lowest of any publicly traded thrift
with assets in excess of one billion dollars. The Great Western Board
expressed concern that Ahmanson's capital position, when combined with its
loan loss reserve coverage, its exposure to multifamily loans and
commercial real estate and its concentration of California-based assets,
made Ahmanson particularly vulnerable to economic downturns and attendant
decreases in credit quality. At December 31, 1996, Ahmanson and Washington
Mutual had: (i) ratios of tangible common equity to tangible assets of
3.31% and 4.83%, respectively; and (ii) ratios of total capital (including
capital securities, preferred and common stock) to total assets of 5.18%
and 5.38%, respectively. The Office of Thrift Supervision (the "OTS")
applies regulatory capital ratios only to savings associations and banks
that it regulates and not to the holding companies of such associations or
banks. At December 31, 1996, each of the respective subsidiary federal
savings banks of Washington Mutual and Ahmanson were "well-capitalized"
within the meaning of OTS rules and regulations. Washington Mutual Bank is
subject to the capital requirements of the Federal Deposit Insurance
Corporation (the "FDIC") and, at December 31, 1996, was "well-capitalized"
within the meaning of FDIC rules and regulations.
(xii) the Great Western Board's concerns that because the transaction
contemplated by Ahmanson would be accounted for as a purchase rather than
as a pooling of interests, (a) the combined institution would carry on its
books a substantial amount of goodwill (and that the level of the combined
institution's intangible assets (of which goodwill is the major component)
to common equity would be amongst the highest in the financial services
industry), which goodwill would have to be amortized and, as a result,
would reduce reported earnings per share, and lead to a substantial
difference between reported earnings per share and cash earnings per share
and (b) a risk existed that the value of the Ahmanson common stock received
by Great Western's stockholders in a merger with Ahmanson would decline if
the market did not value Ahmanson with an emphasis on cash earnings rather
than on reported earnings. In contrast,
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neither of these concerns were raised by the Washington Mutual/Great
Western Merger, which will be accounted for as a pooling-of-interests;
(xiii) the Great Western Board's belief regarding the impact of the
Washington Mutual/Great Western Merger on Great Western's employees
relative to their response to a transaction with Ahmanson, and the positive
effect such impact could have on the business, financial condition and
results of operations of the Combined Company and, conversely, the possible
negative effect of such impact in a combination of Ahmanson and Great
Western. The Great Western Board expressed concern that the low employee
morale among Great Western employees concerning a merger with Ahmanson,
which the Great Western Board believed was attributable to public
statements by Mr. Rinehart relating to Ahmanson's intentions regarding such
employees, could pose integration risks to a combined Great
Western/Ahmanson;
(xiv) the Great Western Board's belief, based on Washington Mutual's
and Great Western's past history of community service and lending, that the
Washington Mutual/Great Western Merger would have a positive impact on
other non-stockholder constituencies, and the positive effect such impact
could have on the business, financial condition and results of operations
of the Combined Company;
(xv) the Great Western Board's review, based in part on presentations
by its financial advisors, of alternatives to the Washington Mutual/Great
Western Merger and the Original Ahmanson Proposal, the range of possible
values to Great Western's stockholders obtainable through implementation of
such alternatives and the timing and likelihood of actually receiving such
values;
(xvi) the following additional factors which contributed to the Great
Western Board's conclusion that the Washington Mutual/Great Western Merger
is in the best interests of Great Western and its stockholders:
(A) the results of the due diligence investigations regarding
Washington Mutual;
(B) the Great Western Board's assessment, with the assistance of
counsel, concerning the likelihood that Washington Mutual would obtain
all required regulatory approvals for the
Washington Mutual/Great Western Merger;
(C) the expectation that the Washington Mutual/Great Western Merger
will generally be a tax-free transaction to Great Western and its
stockholders;
(D) the terms of the Merger Agreement, and certain other
information regarding the Washington Mutual/Great Western Merger,
including the terms and structure of the Washington Mutual/Great Western
Merger and the proposed arrangements with respect to the board of the
Combined Company following the Washington Mutual/Great Western Merger.
With respect to the termination fee provided for in the Merger
Agreement, the Great Western Board actively directed negotiations with a
view to substantially reducing the fee and expense reimbursement
provisions from those initially proposed by Washington Mutual in
response to Great Western's draft merger agreement (which contained no
termination fee or expense reimbursement). After being advised that
Washington Mutual's final position was a condition to its merger
proposal, the Great Western Board ultimately concluded that such
provisions were necessary in order to secure a transaction that the
Great Western Board believed to be superior to that proposed by
Ahmanson. The Great Western Board also considered that Washington Mutual
had informed Great Western that, in order to pursue a merger with Great
Western, Washington Mutual would be foregoing significant business
opportunities. The Great Western Board also noted that, although
originally included in the proposal by Washington Mutual, Washington
Mutual had dropped its request for reciprocal stock option agreements in
connection with the Merger Agreement after negotiations with Great
Western.
On March 25, 1997, the Great Western Board convened with its legal and
financial advisors to consider the Ahmanson Proposal, and determined not to
authorize Great Western management to provide information to, or engage in
negotiations or discussions with, Ahmanson. In reaching this determination, the
Great
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Western Board considered the factors listed above (other than the factor set
forth in clause (iv) above) as well as additional factors, including:
(i) the Great Western Board's review, based on a presentation by its
financial advisors, of the terms of the Ahmanson Proposal;
(ii) the Great Western Board's review, based on a presentation by its
financial advisors, of Ahmanson's revised projections with respect to the
amount of its share repurchase plan and the anticipated cost savings and
revenue enhancements available to Great Western and Ahmanson as a combined
institution;
(iii) the Great Western Board's concern that Ahmanson's projected net
income to common stock, contained in public filings by Ahmanson, for the
period of October 1, 1997 through December 31, 1999, would be insufficient
to cover the cost of Ahmanson's projected share repurchases and dividends
for common stock for the same period, and that, as a result, Ahmanson's pro
forma capital position would be further weakened;
(iv) the financial presentation of its financial advisors and (a) the
opinion of Goldman Sachs rendered on March 25, 1997 that, as of the date of
such opinion, the Exchange Ratio was fair to the stockholders of Great
Western and (b) the opinion of Merrill Lynch rendered on March 25, 1997
that, as of the date of such opinion, the Exchange Ratio was fair to Great
Western's stockholders from a financial point of view. Copies of such
opinions, setting forth the assumptions made, matters considered and review
undertaken, are set forth as Exhibits 8 and 9, respectively. The full text
of each such opinion is incorporated herein by reference and the foregoing
descriptions thereof are qualified in their entirety by such reference.
Great Western's stockholders are urged to read these opinions carefully in
their entirety;
(v) the terms of the Merger Agreement that prohibit such negotiations
unless the Great Western Board "after having consulted with and considered
the advice of its financial advisors and outside counsel, has determined in
good faith that the failure to do so would create a reasonable possibility
of a breach of the fiduciary duties of the Great Western Board" and, after
consultation with its financial advisors and outside counsel, the absence
of such a determination by the Great Western Board;
(vi) that the Great Western Board had made a determination to pursue a
strategic business combination with Washington Mutual, rather than a sale
of Great Western, and that no factors or combination of factors (including
the recognition that, during the period of March 17 through March 24, 1997,
the current nominal implied value of the Ahmanson Proposal was between 3
and 4.5% higher than that of the Exchange Ratio, although the average
implied nominal value of the Ahmanson Proposal for the three month period
ended March 24, 1997 (which was based on the average of the daily closing
prices for such period) had been essentially the same as, and for the six
month period ended March 24, 1997 (which was based on the average of the
daily closing prices for such period) had been lower than, the implied
value of the Exchange Ratio for the corresponding periods had come to its
attention that altered its conclusion, formulated based on the factors
described herein, that Washington Mutual was a more compelling strategic
merger partner than Ahmanson and that the Washington Mutual merger
presented Great Western's stockholders with a superior value opportunity;
and
(vii) the Great Western Board recognized its duty, and its continuing
ability, to engage in careful, informed and disinterested decision making
for the purpose of advancing the best interests of Great Western's
stockholders.
The foregoing discussion of the information and factors considered by the
Great Western Board is not intended to be exhaustive. In reaching its
determination to approve and recommend the Washington Mutual/Great Western
Merger, during its consideration of the Ahmanson Proposal on March 25, 1997 and
during its consideration of the Ahmanson Exchange Offer on May 19, 1997, the
Great Western Board did not assign any relative or specific weights to the
foregoing factors, and individual directors may have given differing weights to
different factors. Throughout its deliberations, the Great Western Board
received the advice of its financial advisors and representatives of Skadden,
Arps, Slate, Meagher & Flom LLP, the firm retained to serve as special counsel
to Great Western, and Latham & Watkins, special counsel to the outside directors
of Great Western.
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Great Western has entered into letter agreements with Goldman Sachs and
Merrill Lynch dated February 18, 1997 and February 25, 1997, respectively
(collectively, the "Engagement Letters"). Pursuant to the Engagement Letters,
Great Western agreed to pay each of Goldman Sachs and Merrill Lynch (i) a
retainer of $1 million, (ii) a fee equal to .125% of the aggregate value of an
acquisition transaction (which, as defined in each of the Engagement Letters,
would include both the Washington Mutual/Great Western Merger and the Ahmanson
Exchange Offer if consummated on the terms described in the Ahmanson Preliminary
Prospectus) which is payable upon execution of a definitive agreement relating
to such a transaction and (iii) a fee equal to .25% of the aggregate value of an
acquisition transaction involving Great Western payable upon consummation of
such transaction, against which the fee set forth in clauses (i) and (ii) above
will be credited. Pursuant to the Engagement Letters, Great Western has paid
each of Goldman Sachs and Merrill Lynch the $1 million retainer and a fee of
$8.8 million upon execution of the Merger Agreement. Great Western also agreed
to reimburse each of Goldman Sachs and Merrill Lynch for its reasonable
out-of-pocket expenses, including all reasonable fees and disbursements of its
attorneys, and to indemnify each of Goldman Sachs and Merrill Lynch and certain
related persons against certain liabilities, including certain liabilities under
federal securities law, arising out of its engagement.
Great Western has retained Georgeson & Company Inc. ("Georgeson") and Alan
M. Miller to assist Great Western in connection with its communications with its
stockholders with respect to, and to provide other services to Great Western in
connection with, the Washington Mutual/Great Western Merger and the Ahmanson
Exchange Offer. Georgeson and Mr. Miller will each receive reasonable and
customary compensation for its services and reimbursement of out-of-pocket
expenses in connection therewith. Great Western has agreed to indemnify each of
Georgeson and Mr. Miller against certain liabilities arising out of or in
connection with their engagement.
Great Western has retained The Abernathy/MacGregor Group, Inc.
("Abernathy") as its public relations advisor in connection with the Washington
Mutual/Great Western Merger and the Ahmanson Exchange Offer. Abernathy will
receive reasonable and customary compensation for its services and reimbursement
of out-of-pocket expenses in connection therewith. Great Western has agreed to
indemnify Abernathy against certain liabilities arising out of or in connection
with its engagement.
Except as set forth above, neither Great Western nor any person acting on
its behalf has employed, retained or compensated any other person to make any
solicitations or recommendations to stockholders on its behalf concerning the
Washington Mutual/Great Western Merger or the Ahmanson Exchange Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best knowledge of Great Western, no transactions in Great
Western Common Stock have been effected during the past 60 days by Great Western
or any executive officer, director, affiliate or subsidiary of Great Western.
(b) To the best knowledge of Great Western, none of its executive officers,
directors, affiliates or subsidiaries presently intends to tender shares of
Great Western Common Stock to Ahmanson pursuant to the Ahmanson Exchange Offer
or to sell any shares of Great Western Common Stock that are owned beneficially
or held of record by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) and (b). As described under Item 3(b) above, Great Western, Washington
Mutual and NACI entered into the Merger Agreement on March 5, 1997. The terms of
the Washington Mutual/Great Western Merger are more fully set forth in the
Merger Agreement, which is incorporated herein by reference and filed as Exhibit
3, and in the Summary of the Joint Proxy Statement/Prospectus, which is filed as
Exhibit 12 and is incorporated herein by reference. A description of the
background of the Washington Mutual/Great Western Merger is contained in Item 4
above.
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As more fully described in Item 4, at its May 19, 1997 meeting, the Great
Western Board, by unanimous vote of those directors present, (i) reaffirmed its
determination that the terms of the Washington Mutual/Great Western Merger are
fair to, and in the best interests of, Great Western and its stockholders and
(ii) determined that the Ahmanson Exchange Offer is not in the best interests of
Great Western and its stockholders and recommended that Great Western
stockholders reject the Ahmanson Exchange Offer and not tender their shares of
Great Western Common Stock pursuant to the Ahmanson Exchange Offer, if and when
such offer is commenced. The factors considered by the Great Western Board in
making its determinations with respect to the Washington Mutual/Great Western
Merger, the Ahmanson Proposal and the Ahmanson Exchange Offer are described in
Item 4 above.
At its May 19 meeting, the Great Western Board determined to postpone the
occurrence of a Distribution Date (as defined in the Great Western Rights Plan)
until such later date as determined by the Great Western Board.
Except as described in this Item 7, Great Western is not engaged in any
negotiation in response to the Ahmanson Exchange Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization,
involving Great Western or any of its subsidiaries, (ii) a purchase, sale or
transfer of a material amount of assets of Great Western or any of its
subsidiaries, (iii) a tender offer for or other acquisition or securities by or
of Great Western or (iv) a material change in the present capitalization or
dividend policy of Great Western.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Litigation. On February 18, 1997, Ahmanson filed a Verified Complaint for
Declaratory and Injunctive Relief against Great Western and its directors (the
"Ahmanson Complaint") in the Court of Chancery of the State of Delaware. The
Ahmanson Complaint is entitled H. F. Ahmanson & Company v. Great Western
Financial Corp., et al., Del. Ch., C.A. No. 15547. The Ahmanson Complaint
alleges, among other things, that: (i) the defendants have breached their
fiduciary duties with respect to the Great Western Rights Plan; (ii) the
adoption of any defensive measure by the defendants which has the effect of
impeding, thwarting, frustrating or interfering with the Ahmanson Proposal would
constitute a breach of the defendants' fiduciary duties; and (iii) the
individual directors of Great Western have breached their fiduciary duties with
respect to Section 203 of the Delaware General Corporation Law (the "Delaware
Business Combination Statute").
Ahmanson seeks declaratory and injunctive relief as follows: (i) an order
enjoining the defendants from adopting any defensive measure which has the
effect of impeding, thwarting, frustrating or interfering with the Ahmanson
Proposal; (ii) an order compelling the defendants to redeem the rights
associated with the Great Western Rights Plan or to amend the Great Western
Rights Plan so as to make it inapplicable to the Ahmanson Proposal; (iii) an
order enjoining the defendants from taking any action pursuant to the Great
Western Rights Plan that would dilute or interfere with Ahmanson's voting rights
or otherwise discriminate against Ahmanson; (iv) an order compelling the
defendants to approve the Ahmanson Proposal for the purposes of the Delaware
Business Combination Statute; (v) an order enjoining the defendants from taking
any action to enforce or apply the Delaware Business Combination Statute that
would impede, thwart, frustrate or interfere with the Ahmanson Proposal; and
(vi) an order awarding Ahmanson its costs and expenses in the action.
On February 26, 1997, Great Western and the individual defendants filed
their Answer, and Affirmative Defenses to the Ahmanson Complaint and Great
Western and the individual defendants filed its Counterclaims to the Ahmanson
Complaint. In the Answer, Great Western and the individual defendants denied all
of the material allegations raised by the Ahmanson Complaint and asserted
affirmative defenses, including that: (i) the Ahmanson Complaint fails to state
a claim on which relief can be granted; and (ii) Ahmanson is acting in its own
self interest at the expense of Great Western and its stockholders and thus
comes to Court with unclean hands. In its Counterclaims to the Ahmanson
Complaint, Great Western seeks, among other things, declaratory and injunctive
relief, including dismissal of the Ahmanson Complaint with prejudice and denial
of the relief requested by Ahmanson. Ahmanson and Great Western have commenced
discovery. Great Western and Ahmanson are currently in the process of responding
to reciprocal requests for documents.
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Between February 18, 1997 and February 26, 1997, six complaints (the
"Complaints") were filed against Great Western and its directors in the Court of
Chancery of the State of Delaware. Those complaints are entitled: Isquith v.
Great Western Financial Corp., et al., Del. Ch., C.A. No. 15549; Lewis v. Maher,
et al., Great Western Financial Corp., Del. Ch., C.A. No. 15555; Bildstein v.
Great Western Financial Corp., et al., Del. Ch., C.A. No. 15556; Utternreither
v. Great Western Financial Corp., et al., Del. Ch., C.A. No. 15557; Zupnick v.
Maher, et al., Great Western Financial Corp., Del. Ch., C.A. No. 15561; Schacter
v. Maher, et al., Great Western Financial Corp., Del. Ch., C.A. No. 15577. Each
action was brought on behalf of the plaintiff, individually, and as a purported
class action on behalf of all stockholders of Great Western. The Complaints
allege, among other things, that the defendants are violating their fiduciary
duties owed to the stockholders of Great Western with respect to the Ahmanson
Proposal. The plaintiffs generally seek: (i) an order declaring that the action
may be maintained as a class action; (ii) an order preliminarily and permanently
enjoining the defendants to consider and negotiate with respect to all bona fide
offers or proposals for Great Western or its assets, in the best interests of
Great Western's stockholders; and (iii) compensatory damages, the costs and
disbursements of the action and such other and further relief as may be just and
proper. In addition, certain plaintiffs seek judgments ordering Great Western's
directors, individually, to announce their intention with respect to certain
matters relating to the Ahmanson Proposal. Great Western and its directors deny
the operative allegations of the Complaints and will file responses thereto as
appropriate; however, answers have not been filed.
On March 7, 1997, Ahmanson filed a Motion for Leave to File Amended and
Supplemental Complaint against Great Western and its directors (the "Ahmanson
Supplemental Complaint") in the Court of Chancery of the State of Delaware. In
addition to the allegations made in the Ahmanson Complaint, the Ahmanson
Supplemental Complaint further alleges, among other things, that: (i) the
defendants have failed to create a level playing field by discriminatorily
favoring other potential bidders to the exclusion of Ahmanson and by entering
into the Merger Agreement; (ii) the defendants have actively and unlawfully
sought to thwart its stockholders from exercising certain of their rights for
the purpose of entrenchment; (iii) the defendants have failed to find the best
value reasonably available; and (iv) the defendants have irreparably harmed
Ahmanson by depriving it of the unique opportunity to acquire Great Western.
Consequently, Ahmanson seeks additional declaratory and injunctive relief
enjoining Great Western and the individual defendants from, among other things,
discriminating against Ahmanson, delaying the Annual Meeting, or taking steps to
consummate the Washington Mutual/Great Western Merger or other transactions with
Washington Mutual.
On March 14, 1997, a complaint (an "Additional Complaint") was filed
against Great Western and its directors in the Court of Chancery of the State of
Delaware entitled Ullman v. Maher, et al., Great Western Financial Corp., Del.
Ch., C.A. No. 15561. The Additional Complaint was brought on behalf of the
plaintiffs, individually, and as a purported class action on behalf of all
stockholders of Great Western. The Additional Complaint alleges, among other
things, that the defendants are violating their fiduciary duties owed to the
stockholders of Great Western by failing to hold an open and fair auction of
Great Western, failing to negotiate the acquisition of Great Western with all
interested parties, and failing to provide a level playing field through the use
of a termination fee in the Merger Agreement and employment of a "poison pill."
The plaintiffs generally seek: (i) an order declaring that the action may be
maintained as a class action; (ii) an order that the defendants carry out their
fiduciary duties and requiring them to respond in good faith to all bona fide
potential acquirors of Great Western; (iii) an order preliminarily and
permanently enjoining implementation of Great Western's poison pill; (iv) an
order rescinding the severance agreements to be paid to the defendants and the
termination fee to be made to Washington Mutual; and (v) the costs and
disbursements of the action and such other and further relief as may be just and
proper. Great Western and its directors deny the operative allegations of the
Additional Complaint; however, an answer has not yet been filed.
On March 18, 1997, Fred T. Isquith, Harris Lewis, Bernard Bildstein,
Charles Uttenreither and Emil Schachter filed an Amended Class Action Complaint
against Great Western and its directors in the Court of Chancery of the State of
Delaware (the "Amended Class Action Complaint"). The Amended Class Action
Complaint alleges, among other things, that: (i) the individual defendants are
violating their fiduciary duties owed to plaintiffs and other members of the
class with respect to the Ahmanson Proposal; (ii) the individual
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defendants have violated their fiduciary duties with respect to certain actions
taken in connection with the proposed merger between Great Western and
Washington Mutual; and (iii) the individual defendants are acting to entrench
themselves by favoring Washington Mutual at the expense and to the detriment of
the public stockholders of Great Western. The plaintiffs seek judgments: (i)
declaring that the action is a proper class action and certifying plaintiffs as
class representatives; (ii) ordering the individual defendants to announce their
intention with respect to certain matters relating to, among other things, the
maximization of stockholder value and the employment of the Great Western Rights
Plan; (iii) enjoining any transaction between Great Western and Washington
Mutual which does not maximize stockholder value; (iv) declaring the approval of
the termination fee to be paid to Washington Mutual in the event that the Merger
Agreement is terminated to be a breach of fiduciary duty and rescinding it; (v)
ordering the individual defendants, jointly and severally, to account to
plaintiffs and the class for all damages suffered as a result of the acts and
transactions alleged in the Amended Class Action Complaint; and (vi) awarding
plaintiffs the costs and disbursements of the action and granting such other and
further relief as may be just and proper. Great Western and its directors deny
the operative allegations of the Amended Class Action Complaint; however, an
answer has not yet been filed.
On March 21, 1997, Ahmanson filed a second Motion for Leave to File Amended
and Supplemental Complaint against Great Western and its directors (the
"Ahmanson Second Supplemental Complaint") in the Court of Chancery of the State
of Delaware and on April 14, 1997, pursuant to a stipulation among the parties,
Ahmanson filed the Ahmanson Second Supplemental Complaint. In addition to the
allegations made in the Ahmanson Complaint and the Ahmanson Supplemental
Complaint, the Ahmanson Second Supplemental Complaint further alleges, among
other things, that: (i) Great Western is attempting to impede Ahmanson's
solicitation of consents from Great Western stockholders with respect to certain
proposals by not recognizing March 13, 1997 (which was the record date for
Ahmanson's original proposals set by the Great Western Board in accordance with
Great Western's By-laws) as the record date for Ahmanson's solicitation of
consents for two additional proposals (the "New Ahmanson Proposals"), with
respect to which, to date, Great Western has not received a request from
Ahmanson to fix a record date; and (ii) Great Western has failed to make full
disclosure of matters relating to the availability of the pooling of interests
method of accounting for the Washington Mutual/Great Western Merger.
Consequently, Ahmanson seeks additional declaratory and injunctive relief
compelling Great Western and the individual defendants to, among other things,
(i) recognize March 13, 1997 as the record date for Ahmanson's solicitation of
consents for the New Ahmanson Proposals; and (ii) disclose certain information
that Ahmanson alleges relates to the availability of pooling of interests
accounting for the Washington Mutual/Great Western Merger. A description of
Ahmanson's consent solicitation is more fully set forth on pages 3-5 of the
Annual Meeting Proxy Statement, which is filed as Exhibit 13 and is incorporated
herein by reference.
On April 9, 1997, Ahmanson filed a Complaint against Great Western pursuant
to Section 225 of the DGCL (the "225 Complaint") in the Court of Chancery of the
State of Delaware entitled H. F. Ahmanson & Company v. Great Western Financial
Corp., Del. Ch., C.A. No. 15650. The 225 Complaint alleges, among other things,
that written consents executed by the record holders of a majority of the Great
Western Common Stock outstanding on March 13, 1997 were delivered to Great
Western on April 9, 1997 that were effective at the time of delivery to adopt a
by-law amendment that would require that Great Western hold its annual meeting
of stockholders on the fourth Tuesday in April or within two weeks thereof (the
"Annual Meeting By-law"). Ahmanson seeks an order (i) declaring that the Annual
Meeting By-law was duly and validly adopted on April 9, 1997; and (ii)
compelling Great Western to hold the Annual Meeting on or before May 6, 1997
(which was 14 days after April 22, 1997, the fourth Tuesday in April).
On April 11, 1997, Ahmanson filed an Amended Complaint against Great
Western and, additionally, its directors (the "Amended 225 Complaint") in the
Court of Chancery of the State of Delaware. In addition to the allegations made
in the 225 Complaint, the Amended 225 Complaint alleges, among other things,
that: (i) the Annual Meeting By-law was effective at the time the consents were
delivered; and (ii) by their actions in announcing a May 9, 1997 record date and
setting the Annual Meeting for June 13, 1997, Great Western's directors violated
the Annual Meeting By-law and the provision of Great Western's By-laws regarding
special meetings, thereby breaching their fiduciary duties. In addition to the
relief sought in the 225 Complaint,
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Ahmanson seeks an order enjoining Great Western from scheduling or holding any
vote on any proposed transaction, including but not limited to the Washington
Mutual/Great Western Merger, prior to two weeks following the certification of
the election of directors.
On April 18, 1997, Ahmanson filed a Motion for Leave to File a Second
Amended Complaint against Great Western and its directors (the "Second Amended
225 Complaint") in the Court of Chancery of the State of Delaware. In addition
to the allegations made in the 225 Complaint and the Amended 225 Complaint, the
Second Amended 225 Complaint further alleged, among other things, that the Great
Western directors breached their fiduciary duties and engaged in "unlawful
manipulation of the corporate machinery" by changing the date of the Annual
Meeting. Consequently, Ahmanson seeks additional injunctive relief enjoining
Great Western from scheduling or holding any vote on any proposed transaction,
including but not limited to the Washington Mutual/Great Western Merger, for a
"reasonable time" following the election of directors and enjoining Great
Western from failing to comply with the Great Western By-laws regarding special
meetings.
On April 25, 1997, the Court of Chancery of the State of Delaware (i)
granted, in part, Great Western and its directors' April 16, 1997 Motion to
Dismiss and for a Protective Order by dismissing, insofar as it sought
injunctive relief before the date of the Annual Meeting, Ahmanson's claim in the
Second Amended 225 Complaint that the Great Western directors breached their
fiduciary duties by manipulating the corporate machinery; and (ii) ordered
limited discovery concerning the scheduling of the Annual Meeting for June 13,
1997.
On April 28, 1997, Great Western filed a Complaint for Declaratory and
Injunctive Relief against Ahmanson in the Court of Chancery of the State of
Delaware entitled Great Western Financial Corp. v. H. F. Ahmanson & Company,
Del. Ch., C.A. No. 15680. On April 29, 1997, Great Western filed an Amended
Complaint for Declaratory Relief against Ahmanson (the "Amended Great Western
Complaint") in the Court of Chancery of the State of Delaware. The Amended Great
Western Complaint alleges, among other things, that an approximately 5.2 million
share double vote occurred in connection with the Ahmanson consent solicitation
resulting in a substantial overvote, that certain revocations and abstentions
were not properly given effect and that certain Ahmanson consent cards
indicating consent to one or more but not all of the proposals for which
Ahmanson was soliciting consents were improperly counted as having consented to
all of such proposals. Great Western seeks, among other things, an order
declaring that there was an overvote entitling the inspectors of election to
consider extrinsic evidence concerning the duplicate vote of approximately 5.2
million shares, that the revocations and abstentions at issue revoked consent
only as to the specific proposals marked. On May 1, 1997, Great Western and
Ahmanson each requested that the independent inspectors retabulate the vote
without giving effect to the double-counted shares and recertify the results of
the Ahmanson consent solicitation.
On May 1, 1997, Fred T. Isquith, Harry Lewis, Bernard Bildstein, Charles
Uttenreither and Emil Schachter filed a Motion for Leave to File Second Amended
Class Action Complaint against Great Western and its directors in the Court of
Chancery of the State of Delaware (the "Second Amended Class Action Complaint").
The Second Amended Class Action Complaint further alleges, among other things,
that the defendants are: (i) violating their fiduciary duties by wrongfully
manipulating the proxy solicitation machinery; (ii) failing to timely call a
stockholder meeting in contravention of Great Western's By-laws; and (iii)
interfering with and delaying the consideration of a slate of directors proposed
by Ahmanson for election to the Great Western Board. Consequently, the
plaintiffs seek additional relief including, among other things: (i) an order
that the Great Western Board refrain from taking any action which impedes or
interferes with the voting rights of Great Western stockholders; and (ii) an
order that the Great Western Board schedule a stockholder meeting to elect
directors on May 6, 1997 or as soon thereafter as practicable. The parties have
agreed to initiate discovery on a limited basis.
On May 6, 1997, Great Western and the individual defendants filed their
Answer and Affirmative Defenses to the Ahmanson Second Supplemental Complaint.
In the Answer, the defendants denied all of the material allegations raised by
the Ahmanson Second Supplemental Complaint and asserted affirmative defenses,
including that: (i) the Ahmanson Second Supplemental Complaint fails to state a
claim on which
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<PAGE> 17
relief can be granted; (ii) Ahmanson is acting in its own self interest at the
expense of Great Western and its stockholders and thus comes to the Court with
unclean hands; and (iii) Ahmanson's claims are not ripe.
On May 7, 1997, Great Western and the individual defendants filed their
Answer and Affirmative Defenses to the Ahmanson Second Amended 225 Complaint. In
the Answer, the defendants denied all of the material allegations raised by the
Ahmanson Second Amended 225 Complaint and asserted affirmative defenses,
including that: (i) the Ahmanson Second Amended 225 Complaint fails to state a
claim on which relief can be granted; (ii) Ahmanson is acting in its own self
interest at the expense of Great Western and its stockholders and thus comes to
the Court with unclean hands; and (iii) Ahmanson's claims are not ripe.
On May 8, 1997, Ahmanson submitted a letter (the "May 8 Letter") to the
Court of Chancery of the State of Delaware relating to its claims in the Second
Amended 225 Complaint. In the May 8 Letter, Ahmanson (i) states that it is no
longer seeking to advance the date of the Annual Meeting forward from June 13,
1997, and (ii) requests that the Court require that the separate special meeting
of stockholders of Great Western at which the Washington Mutual/Great Western
Merger will be voted upon occur no earlier than six weeks after certification of
the results of the Annual Meeting.
On May 13, 1997, Ahmanson filed a motion with the Court of Chancery of the
State of Delaware seeking to require a six-week gap between the certification of
results of the election of directors at the Annual Meeting and the vote by the
Great Western's stockholders on the Washington Mutual/Great Western Merger. The
Court will hear the motion on May 30, 1997 and discovery has commenced with
respect thereto.
Great Western and its directors intend to vigorously defend the claims in
the Ahmanson Complaint, the Ahmanson Supplemental Complaint, the Complaints and
the Additional Complaint, the Amended Class Action Complaint, the Ahmanson
Second Supplemental Complaint, the 225 Complaint, the Amended 225 Complaint and
the Second Amended Class Action Complaint.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
<TABLE>
<S> <C>
Exhibit 1: Pages 17-33 from the Annual Meeting Proxy Statement.
Exhibit 2: Pages 70-75 from the Joint Proxy Statement/Prospectus.
Exhibit 3: Agreement and Plan of Merger, dated as of March 5, 1997, by and among Washington
Mutual, NACI and Great Western (incorporated herein by reference to Appendix A
to the Joint Proxy Statement/Prospectus).
Exhibit 4: Letter to Stockholders of Great Western, dated May 20, 1997.
Exhibit 5: Press Release issued by Great Western, dated May 20, 1997.
Exhibit 6: Opinion of Goldman, Sachs & Co., dated March 5, 1997.
Exhibit 7: Opinion of Merrill Lynch & Co., dated March 5, 1997.
Exhibit 8: Opinion of Goldman, Sachs & Co., dated March 25, 1997.
Exhibit 9: Opinion of Merrill Lynch & Co., dated March 25, 1997.
Exhibit 10: Opinion of Goldman, Sachs & Co., dated May 19, 1997.
Exhibit 11: Opinion of Merrill Lynch & Co., dated May 19, 1997.
Exhibit 12: Summary from the Joint Proxy Statement/Prospectus.
Exhibit 13: Pages 3-5 from the Annual Meeting Proxy Statement.
</TABLE>
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<PAGE> 18
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
GREAT WESTERN FINANCIAL
CORPORATION
By: /s/ J. LANCE ERIKSON
------------------------------------
J. Lance Erikson
Executive Vice President, Secretary
and General Counsel
Dated: May 19, 1997
17
<PAGE> 19
<TABLE>
<S> <C>
Exhibit 1: Pages 17-33 from the Annual Meeting Proxy Statement.
Exhibit 2: Pages 70-75 from the Joint Proxy Statement/Prospectus.
Exhibit 3: Agreement and Plan of Merger, dated as of March 5, 1997, by and among Washington
Mutual, NACI and Great Western (incorporated herein by reference to Appendix A
to the Joint Proxy Statement/Prospectus).
Exhibit 4: Letter to Stockholders of Great Western, dated May 20, 1997.
Exhibit 5: Press Release issued by Great Western, dated May 20, 1997.
Exhibit 6: Opinion of Goldman, Sachs & Co., dated March 5, 1997.
Exhibit 7: Opinion of Merrill Lynch & Co., dated March 5, 1997.
Exhibit 8: Opinion of Goldman, Sachs & Co., dated March 25, 1997.
Exhibit 9: Opinion of Merrill Lynch & Co., dated March 25, 1997.
Exhibit 10: Opinion of Goldman, Sachs & Co., dated May 19, 1997.
Exhibit 11: Opinion of Merrill Lynch & Co., dated May 19, 1997.
Exhibit 12: Summary from the Joint Proxy Statement/Prospectus.
Exhibit 13: Pages 3-5 from the Annual Meeting Proxy Statement.
</TABLE>
18
<PAGE> 1
EXHIBIT 1
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS FEES
Mr. Maher is the only director who is an employee of Great Western. See
"-- Employment Agreements" below for a description of Mr. Maher's employment
contract. Directors, other than Mr. Maher, are paid an annual retainer of
$25,000 for Board service to both Great Western and GWB and combined attendance
fees totalling $1,800 for each Great Western and GWB Board meeting attended.
Chairpersons of committees receive an attendance fee of $1,500 for presiding
over their committee meetings, vice chairs receive an attendance fee of $1,250
and committee members receive an attendance fee of $1,000. Additionally, each
chairperson of a committee receives an annual fee of $3,000, vice chairs receive
an annual fee of $1,500 and the secretary of the Audit and Finance Committee
receives an annual fee of $2,000. Directors are also offered insurance coverage
similar to that provided under the Company's health and dental plans and are
provided with travel and accident insurance coverage for travel to and from
Board and committee meetings at no cost to them. Mr. Maher is not paid any fees
or additional remuneration for his service as a member of the Board or any
committee, but he is eligible to receive benefits under the Directors'
Retirement Plan, described below. The amounts referred to above do not include
the economic benefit of preferential loans under the Company's Home Loan Program
described on pages 32 and 33.
CONSULTING AGREEMENT WITH MR. MONTGOMERY
Mr. Montgomery's consulting agreement with Great Western (the "Consulting
Agreement"), effective December 29, 1995 for an initial term of five years (the
"Consulting Period"), contemplates that Mr. Montgomery serve as Chairman of the
Board of Great Western through December 31, 1997, and thereafter upon election
by the Board (but he shall continue in any case to serve as a director of Great
Western and GWB during the Consulting Period). Pursuant to the terms of the
Consulting Agreement, during the Consulting Period, Mr. Montgomery will devote
substantial time and attention as required, but no less than half time (if and
to the extent requested), to promoting the business affairs and interests of
Great Western and its affiliates. In addition to his compensation as a director
(including non-employee director stock options under the Company's stock
incentive plans, and benefits under the Director's Retirement Plan described
below), Mr. Montgomery receives an annual consulting fee of $485,000. He is not
entitled to receive awards under any bonus plan or incentive plan for employees
of Great Western during the Consulting Period. The Consulting Agreement extends
Mr. Montgomery's outstanding $500,000 personal, unsecured loan maturity to
December 31, 1999 or, under certain circumstances, to the end of the Consulting
Period.
In connection with his retirement as Chief Executive of Great Western and
GWB, the Company granted to Mr. Montgomery a stock option (the "Special Option")
to purchase 300,000 Common Shares, which will generally become exercisable at
the rate of 25% per year commencing April 26, 1996, and, once exercisable, the
Special Option may be exercised at any time thereafter until the first to occur
of (i) April 24, 2005, (ii) termination for cause (as defined in the Consulting
Agreement), (iii) termination of the Consulting Agreement, or if it is deemed
terminated in accordance with its terms, two years after the Consulting
Agreement would have otherwise terminated (until the assumed date of
termination, the Special Option will continue to vest as provided therein), or
(iv) two years after a termination of all services (including services as a
Director) for any other reason (except that the Special Option will be
exercisable only to the extent exercisable on the date of a termination by
reason of death or disability (as defined in the Consulting Agreement) or a
termination of such services by Mr. Montgomery (other than a termination to
which clause (iii) applies)). During the term of the Consulting Agreement,
awards of restricted stock granted to Mr. Montgomery while he was an employee of
Great Western and GWB will continue to vest in accordance with the terms of the
related restricted stock award agreement and generally will vest in full on
December 31, 2000 if Mr. Montgomery has continued to provide services to Great
Western in accordance with the terms of the Consulting Agreement.
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<PAGE> 2
Mr. Montgomery's payments under the Company's Supplemental Executive
Retirement Plan commenced on January 1, 1996, without any offset for benefits
payable under the Retirement Plan, which generally will not be payable until he
ceases to perform services for Great Western and GWB. The Consulting Agreement
provides that, in the event of his death, Mr. Montgomery's beneficiaries would
be entitled to a payment equal to 250% of Mr. Montgomery's then current annual
consulting fee, reduced by the amount of Company-provided life insurance
proceeds. Mr. Montgomery's beneficiaries would also be entitled to receive
continued payment of 50% of his then current annual consulting fee for a period
of 10 years, also reduced by life insurance proceeds. In addition, Mr.
Montgomery's family would be entitled to continuation of certain insurance
benefits for two years. Upon termination of the Consulting Agreement due to
disability, Mr. Montgomery would continue to receive, until the disability ends,
but no later than age 65, 50% of his then current annual consulting fee, less
benefits payable under the Company's long-term disability plan. He would also be
entitled to continuation of certain other benefits. In the event of a
termination without cause, or if Mr. Montgomery voluntarily terminates the
Consulting Agreement following a material breach by the Company, he will receive
his consulting fees at the current rate for what would have been the remainder
of the term of the Consulting Agreement absent such termination, and the Special
Option and awards of restricted stock previously granted to Mr. Montgomery would
continue to vest during the same period. In the event of a voluntary termination
of Mr. Montgomery's service following a material breach by the Company after a
Change in Control (as defined in the Consulting Agreement), all restricted
shares and that portion of the Special Option which is then unvested shall
immediately vest. In no event will payments to Mr. Montgomery which are
contingent upon a Change in Control under applicable tax rules ("parachute
payments") exceed limits specified by the Internal Revenue Code of 1986, as
amended (the "Code"), that currently approximate three times the average of his
compensation for the prior five years (the "Section 280G Limit").
Notwithstanding the foregoing, if the value of such aggregate entitlement
constituting parachute payments is less than the Section 280G Limit for any
reason (including that some or all of such entitlement does not constitute a
parachute payment), Mr. Montgomery is entitled to receive the Section 280G
Limit. A Change in Control occurs under the Consulting Agreement when anyone
acquires ownership of 25% or more of the Company's outstanding voting stock and
the directors of the Company immediately before such acquisition cease to
constitute five-sixths of the Board of Directors of the Company or any
successor. Under the terms of the Merger Agreement, consummation of the
Washington Mutual Merger will constitute a Change in Control for purposes of the
Consulting Agreement.
DIRECTORS' RETIREMENT PLAN
The Great Western Directors' Retirement Plan, as amended to date
("Directors' Retirement Plan"), provides retirement benefits to directors. Upon
termination of service on the Board, each eligible director is entitled to an
annual retirement benefit equal to the sum of the annual retainer paid to
members of the Board plus twelve times the monthly meeting fee, both as in
effect at the time of the director's termination. Benefits are payable for a
period equal to the number of years that the eligible director served as a
director. Such benefits will be provided to the surviving spouse or other
designated beneficiary following the death of an eligible director.
DIRECTOR STOCK OPTION PROGRAM
Upon adoption of the 1988 Stock Option and Incentive Plan, as amended to
date (the "1988 Stock Plan"), each non-employee director was granted
automatically, subject to stockholder approval of such Plan, a nonqualified
option under the 1988 Stock Plan's Non-Employee Director Program to purchase
2,500 Common Shares at the then fair market value of such shares. Each
non-employee who thereafter becomes a director is also automatically granted
such an option upon becoming a Director. Annually, each non-employee director
automatically is granted an option (an "Annual Option") to purchase 2,500 Common
Shares. No non-employee director may receive options to purchase more than 2,500
shares in any calendar year. The purchase price per Common Share covered by each
Annual Option, payable in cash and/or shares, is the fair market value of the
Common Shares on the date the option is granted. Annual Options become
exercisable in 50% installments on the first and second anniversary of their
grant, and, unless earlier terminated, terminate
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<PAGE> 3
ten years after they are granted. The exercise prices of Annual Options granted
in 1995, 1996 and 1997 were $16.00, $26.125, and $28.75, respectively.
If a non-employee director's services as a Board member are terminated as a
result of death, disability or retirement after age 72, Annual Options will
become immediately exercisable in full and will remain exercisable for a period
of two years or until the expiration of the stated term of the option, whichever
period is shorter. If a non-employee director's services are terminated for any
other reason, any then exercisable portion of an Annual Option will be
exercisable for a period of three months or the balance of the option's term,
whichever period is shorter.
The 1988 Stock Plan provides for full vesting and exercisability of the
Annual Options in the event of a Change in Control of the Company. The term
"Change in Control" is defined in the 1988 Stock Plan as it is defined in Mr.
Maher's employment agreement (described on pages 21 and 22 of this Proxy
Statement). Under the terms of the Merger Agreement, consummation of the
Washington Mutual Merger will constitute a Change in Control for purposes of the
1988 Stock Plan.
EXECUTIVE OFFICERS
The following table and accompanying notes show for John F. Maher, Chief
Executive Officer, and the four next highest paid executive officers of the
Company as of December 31, 1996 (the "named Executive Officers"), the aggregate
indicated compensation paid by the Company and its subsidiaries to such persons
during the three fiscal years then ending.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- ----------------------------
AWARDS PAYOUTS
------------ -------------
(A) (B) (C) (D) (E) (F) (G) (H)
OTHER
ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING LTIP COMPENSATION
POSITION YEAR ($)(1) ($)(1) ($)(2) OPTIONS/SARS PAYOUTS($)(3) ($)(4)
- --------------------- ---- -------- -------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
John F. Maher........ 1996 780,000 369,720 196,380 375,000 3,396,094 33,594
President and Chief 1995 650,000 303,225 165,505 0 -- 27,780
Executive Officer 1994 650,000 295,750 239,966 150,000 -- 27,638
Michael M. Pappas.... 1996 437,500 157,500 63,072 120,000 1,455,469 17,500
Vice Chairman and 1995 420,000 163,850 -- 0 -- 16,800
President, Consumer 1994 410,000 176,988 832 70,000 -- 16,400
Finance Division
A. William
Schenck III........ 1996 416,000 131,456 61,950 150,000 423,475 14,800
Vice Chairman 1995 399,996 153,500 45,178 0 -- 0
Carl F. Geuther...... 1996 385,000 121,660 89,022 130,000 1,164,375 15,400
Vice Chairman and 1995 372,000 129,018 70,035 0 -- 14,900
Chief Financial 1994 360,000 131,040 81,316 70,000 -- 14,400
Officer
J. Lance Erikson..... 1996 300,000 94,800 42,301 90,000 582,188 12,000
Executive Vice 1995 285,000 106,362 50,835 0 -- 11,400
President,
Secretary 1994 275,000 100,100 55,464 40,000 -- 11,000
and General Counsel
</TABLE>
- ---------------
(1) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers.
(2) Amounts shown include, when applicable, that portion of interest earned on
deferred compensation accounts above 120% of the applicable federal rate,
country club dues, personal use of corporate aircraft, the estimated
economic benefit of preferential loans made under the Home Loan Program
shown in the table on page 27 and described further at pages 32 and 33, and
the incremental cost to the Company of (a) Company provided automobiles; (b)
tax and financial planning advice by third parties; and
3
<PAGE> 4
(c) insurance which provides reimbursement for health and dental costs in
excess of the amount payable under the Company's group health and dental
plans. Perquisites in excess of 25% of the total perquisites reported in
column (e) for 1996 include the following: Mr. Maher: economic benefit of
personal use of aircraft -- $46,665; Mr. Pappas: economic benefit of company
automobiles -- $17,931, excess medical and dental coverage -- $19,189,
economic benefit of preferential loans -- $25,952; Mr. Schenck: economic
benefit of preferential loans -- $42,888; Mr. Geuther: economic benefit of
excess medical and dental coverage -- $28,661, economic benefit of
preferential loans -- $35,044; Mr. Erikson: economic benefit of preferential
loans -- $23,726.
(3) Mr. Schenck was awarded a total of 21,544 shares of performance-based
restricted stock in 1995. Such restricted shares generally vest in three to
ten years; vesting may be accelerated upon the occurrence of certain events,
including the achievement of performance goals, and all such restricted
shares vest immediately upon the occurrence of a Change in Control (as
described under the caption "EMPLOYEE BENEFIT PLANS -- Restricted Stock").
On January 23, 1996, shares of restricted stock held by the named Executive
Officers, valued at the then current market value of $23.375 per share,
vested as follows: Mr. Maher, 87,500 shares, valued at $2,045,313; Mr.
Pappas, 37,500 shares, valued at $876,563; Mr. Geuther, 30,000 shares,
valued at $701,250; and Mr. Erikson, 15,000 shares, valued at $350,625. On
February 1, 1996, 10,772 shares of restricted stock held by Mr. Schenck
vested, valued at $257,182 (based on the then current market value of
$23.875 per share). On December 9, 1996, shares of restricted stock held by
the named Executive Officers, valued at the then current market value of
$30.875 per share, vested as follows: Mr. Maher, 43,750 shares, valued at
$1,350,781; Mr. Pappas, 18,750 shares, valued at $578,906; Mr. Schenck,
5,386 shares, valued at $166,293; Mr. Geuther, 15,000 shares, valued at
$463,125; and Mr. Erikson, 7,500 shares, valued at $231,563. At year-end
1996, the named Executive Officers held shares of restricted stock, valued
at the then current market value of $29.00 per share, as follows: Mr. Maher,
43,750 shares, valued at $1,268,750; Mr. Pappas, 18,750 shares, valued at
$543,750; Mr. Schenck, 5,386 shares, valued at $156,194; Mr. Geuther, 15,000
shares, valued at $435,000; and Mr. Erikson, 7,500 shares, valued at
$217,500. Dividends are paid on restricted stock at the same rate payable to
common stockholders and are not reflected in the amount reported.
(4) The amounts shown in this column for 1996 consist of the following
respective amounts: (a) Mr. Maher: Employee Savings Incentive Plan and
related supplemental matches -- $31,200; Split Dollar Term Insurance
Premium -- $2,394; (b) Mr. Pappas: Employee Savings Incentive Plan and
related supplemental matches -- $17,500; (c) Mr. Schenck: Employee Savings
Incentive Plan and related supplemental matches -- $14,800; (d) Mr. Geuther:
Employee Savings Incentive Plan and related supplemental matches -- $14,476;
deferred compensation plan matches and makeups -- $924; (e) Mr. Erikson:
Employee Savings Incentive Plan and related supplemental matches -- $12,000.
EMPLOYMENT AGREEMENTS
Mr. Maher's employment agreement with Great Western, as amended to date,
provides for a rolling three-year term and provides for various benefits,
including a current annual salary of $860,000 which is subject to periodic
review and increase, but not decrease. The agreement provides for various
payments to Mr. Maher or his beneficiaries in the event of his death,
disability, or termination without "Cause" (as defined in the agreement),
including a death benefit payment to his beneficiaries equal to 250% of his then
current salary, reduced by the amount of company-provided life insurance
proceeds. Mr. Maher's beneficiaries would also be entitled to receive continued
payment of 50% of his then current salary until the time when he would have been
age 65 but in no event for a period less than ten years, as well as continuation
of certain insurance benefits for two years. Upon termination due to disability,
Mr. Maher would continue to receive, until death or his 65th birthday, whichever
occurs first, 50% of the sum of his current salary plus his average bonus over
the prior three years, less benefits payable under the Company's long-term
disability plan, and continuation of certain other benefits. In the event of a
termination without Cause, Mr. Maher would receive his current salary for the
remaining term of the agreement and a full or partial bonus payment for the year
of termination, without offset for subsequent employment. He would also be
entitled to continuation of certain other benefits for the same period, and a
pro-rata payment of long-term incentive benefits. In the event of a qualifying
termination following a Change in Control (or during the pendency of a Potential
Change in Control or during
4
<PAGE> 5
the 6-month period thereafter), Mr. Maher is entitled to a lump-sum severance
payment equal to three times the sum of his salary and target bonus; payment of
a pro-rata target bonus to the date of termination (if termination occurs in the
same year in which a Change in Control occurs, such payment will be offset by
amounts received under the Annual Incentive Compensation Plan for Executive
Officers in connection with such Change in Control); continuation of
welfare-type benefits for three years; immediate vesting of restricted shares
and stock options (where such qualifying termination occurs during the pendency
of a Potential Change in Control or during the 6-month period thereafter); and
credit for years of service and years of age equal to the remaining term of his
agreement for purposes of calculating his benefits under the Supplemental
Executive Retirement Plan. For purposes of Mr. Maher's employment agreement: (i)
a "Change in Control" is defined generally as (a) a change in the majority of
the Board, subject to certain exceptions; (b) any Person (as defined in the
agreement) becoming the beneficial owner of 25% or more of either the
outstanding Common Shares or the combined voting power of the Company's then
outstanding securities; (c) consummation of the sale of all or substantially all
of the assets of the Company; (d) consummation of a merger or consolidation of
the Company other than one immediately following which the Company's
stockholders continue to hold at least 75% of the combined voting power of the
voting securities of the Company or the surviving corporation or any parent
thereof (provided, that if a February 20, 1997 amendment to Mr. Maher's
agreement which raised the threshold percentage to 75% would prevent a
transaction intended to qualify as a "pooling of interests" from so qualifying,
such threshold percentage will be 60%); or (e) stockholder approval of the
liquidation or dissolution of the Company; and (ii) a "Potential Change in
Control" generally occurs upon (a) any Person becoming the beneficial owner of
15% or more of either the outstanding Common Shares or the combined voting power
of the Company's then outstanding securities; (b) the execution by the Company
of an agreement, or the public announcement by the Company or any Person of an
intention to take (or to consider taking) actions the consummation of which
would result in a Change in Control; (c) the filing with the FDIC or the Office
of Thrift Supervision of an application for Change in Control; or (d) the
Board's adoption of a resolution to the effect that a Potential Change in
Control has occurred. Mr. Maher's agreement provides that he may elect to
terminate his employment, without a material breach by the Company, and receive
the benefits described above during the period commencing no earlier than
eighteen months following a Change in Control and ending no later than the
second anniversary of such Change in Control; provided, that the eighteen-month
minimum period will not apply if, at any time during the first year following
such Change in Control, more than 50% of the non-employee members of the Board
as of the date immediately preceding the Change in Control are no longer members
of the Board; and provided further, that, if Mr. Maher elects to so terminate
his agreement, cash benefits which would become payable will be reduced by 25%.
In addition, the Company will pay any additional amount necessary to make Mr.
Maher whole with respect to any excise tax that may be assessed under Section
4999 of the Code, in respect of payments made to Mr. Maher under his employment
agreement and any other Great Western plan, agreement or arrangement in which
Mr. Maher participates. If all of the payments and benefits to which Mr. Maher
may become entitled in connection with a Change in Control are in the aggregate
less than the maximum amount he is entitled to receive without incurring a
liability under Section 4999 of the Code for any reason (including that some or
all of such entitlements do not constitute parachute payments), then he will be
entitled to receive such maximum amount. In the event of a good-faith dispute
regarding interpretation of the terms or enforcement of the provisions of his
employment agreement, Mr. Maher is entitled to recover reasonable attorney's
fees. Under the terms of the Merger Agreement, consummation of the Washington
Mutual Merger will constitute a Change in Control for purposes of Mr. Maher's
employment agreement.
Great Western has employment agreements with the other named Executive
Officers (and with Jaynie M. Studenmund and Ray W. Sims, the other executive
officers of Great Western that are not named Executive Officers), which have
initial terms of three years and provide for rolling two-year terms at the end
of the first contract year unless earlier terminated. The base annual salaries
for Messrs. Pappas, Schenck, Geuther, Erikson and Sims and Ms. Studenmund under
their employment agreements are $450,000, $450,000, $400,000, $315,000, $340,000
and $350,000, respectively, subject to periodic review and increase, but not
subject to decrease unless done in conjunction with a pro-rata salary reduction
applicable to all Great Western officers.
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<PAGE> 6
The employment agreements, as amended to date, provide for various benefits
to each other executive officer or such officer's beneficiaries in the event of
death, disability, or termination without "Cause" (as defined in the agreements)
and in the event of a qualifying termination following a Change in Control or
during the pendency of a Potential Change in Control (or during the 6-month
period thereafter). In the event of the executive officer's death, his or her
beneficiaries would be entitled to payment of the executive officer's salary and
continuation of certain insurance benefits for one year. Upon termination due to
disability, the executive officer would receive 50% of the sum of his or her
current salary plus average bonus over the prior three years, less benefits
under the Company's long term disability plan, until the disability ends, but
not later than age 65 or for a period greater than ten years. In all other
respects, the terms of these agreements are substantially similar to those
contained in Mr. Maher's employment agreement, except that the agreements do not
provide the right to terminate the agreements without a material breach by the
Company during the period commencing eighteen months following a Change in
Control and ending twenty-four months following such Change in Control. Under
the terms of the Merger Agreement, consummation of the Washington Mutual Merger
will constitute a Change in Control for purposes of these employment agreements.
In December 1996, the Board adopted amendments to the employment agreements
with the executive officers which, among other things, revised the definition of
a Change in Control and provided for severance and other benefits to become
payable upon a qualifying termination of employment during the pendency of a
Potential Change in Control or during the 6-month period thereafter. In February
1997, the Board adopted an amendment to these agreements which further revised
the definition of a Change in Control, with the proviso that if such revision
would prevent a transaction intended to qualify as a pooling of interests from
so qualifying, such amendment would have no force and effect. The definition of
a Change in Control, as amended, and the provision of certain benefits as
described above, are as set forth in the description of Mr. Maher's employment
agreement.
The following Report of the Compensation Committee and the Performance
Graph included in this Proxy Statement shall not be deemed to be incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent the Company specifically incorporates
this Report or the Performance Graph by reference therein, and shall not be
deemed soliciting material or otherwise deemed filed under either of such Acts.
REPORT OF THE COMPENSATION COMMITTEE
Since 1989, the Company has retained the services of Strategic Compensation
Associates ("SCA"), a nationally known consulting firm specializing in executive
compensation issues, to assist the Compensation Committee (the "Committee") in
connection with the performance of its various responsibilities. SCA advises the
Committee with respect to the reasonableness and appropriateness of compensation
for the Company's Executive Officers. In doing so, the firm prepares and reviews
with the Compensation Committee various materials reflecting the compensation
practices of a peer group consisting primarily of major regional commercial
banks and other factors which SCA and the Compensation Committee consider
relevant.
In determining the compensation levels for all executive officers, it has
been the policy and practice of the Committee to consider the advice of SCA, the
contributions of individual executive officers, the performance and prospects of
the Company over time, and the desirability of attracting and retaining a highly
capable and experienced executive management group. All of the executive
officers have employment agreements with the Company as described on pages 21
and 22.
It is the Company's policy to place an increasingly significant percentage
of total executive compensation "at risk," principally through the award of
annual cash bonuses based on performance. Consistent with this policy, annual
salary increases are limited, resulting in total compensation for executive
officers as a group, excluding bonuses, at approximately the 50th percentile for
companies included in the compensation analysis. The executive officers have an
opportunity to significantly increase their compensation through bonuses and
stock option awards if performance targets set by the Committee are achieved.
6
<PAGE> 7
As the chief executive officer, Mr. Maher's compensation and related
benefits are based principally on his rights under an employment agreement with
the Company. For 1996, the Compensation Committee set Mr. Maher's salary, target
bonus opportunity and total direct pay, which includes the economic value of
stock option awards based on the Black-Scholes Option Pricing Model, in relation
to compensation levels for chief executive officers in the peer group. Over
time, the Committee believes it appropriate to provide total direct pay to the
chief executive officer at a level between the 60th and 75th percentile for
chief executive officers in the peer group. Because of Mr. Maher's recent
promotion to this position, however, he was compensated substantially below the
target level for 1996. Mr. Maher's cash compensation for 1996 was also directly
related to the Company's earnings per share because, as described in the
succeeding paragraph, his cash bonus opportunity under the Company's Annual
Incentive Compensation Plan for Executive Officers (the "Annual Plan") is
dependent upon the attainment of earnings per share targets established by the
Compensation Committee.
Under the terms of the Annual Plan approved by stockholders in 1994, a
substantial part of an executive's cash compensation is contingent upon the
achievement of the Company's performance goals set by the Compensation
Committee. The performance goal for the executive officers, other than the
President of the Consumer Finance Division, is a targeted earnings per share as
established on an annual basis by the Compensation Committee. For the President
of the Consumer Finance Division, the performance goal is based upon the
attainment of an earnings before taxes goal for the Consumer Finance Division
established annually by the Committee and the attainment of the earnings per
share target applicable to the other executive officers. The target goals are
established annually by the Compensation Committee on or before the applicable
deadline under the federal income tax rules. In fiscal year 1996, targeted
levels of incentive compensation were 40% of adjusted base salary for the
Company's Vice Chairmen, Executive Vice Presidents and the President of the
Consumer Finance Division, and 60% of adjusted base salary for the Chief
Executive. Depending upon the degree of attainment of the performance goals, the
executive's compensation is supplemented by fiscal year-end cash bonus payments
equal to as little as 0% or as much as 200% of the executive officer's
respective targeted level of incentive compensation. For 1996, the Committee
approved an earnings per share goal and, based on the Company's reported
earnings per share of $2.09, after adjustment in accordance with the Plan
provisions to account for non-recurring events, the executive officers, other
than the President of the Consumer Finance Division, were entitled to receive
79% of their respective targeted levels of incentive compensation. The 1996
earnings before taxes goal for the Consumer Finance Division was $102.2 million,
and $98.7 million was reported. Based upon the Company's reported earnings per
share and the reported earnings before taxes of the Consumer Finance Division,
the President of the Consumer Finance Division received 90% of his targeted
level of incentive compensation. Based on the competitive compensation analysis
provided by SCA, the Company believes that the level of the Company's aggregate
salary and bonus compensation and total compensation in 1996 for the executive
officers as a group was at approximately the 40th percentile for companies
included in the compensation analysis.
In 1996, the Compensation Committee adopted stock ownership guidelines for
the Company's executive and senior officers requiring certain levels of
ownership of the Common Shares by the end of a five year period, except for
recently hired officers, for whom the period is seven years. The guidelines
provide for ownership of the Company's Common Shares by the Chief Executive in
an amount equal to five times his salary, ownership by the Vice Chairmen and
Executive Vice Presidents in amounts equal to three times their salaries, and
ownership by senior officers in amounts equal to one or two times their
salaries. Recent stock option grants for the Company's executive and senior
officers also provide that so long as may be necessary to comply with stock
ownership guidelines, the officers will retain upon exercise of stock options at
least one-half of the net number of shares received on exercise.
In 1992, following a comprehensive study of long term incentive programs
and recommendations made by SCA, the Compensation Committee approved performance
based restricted stock awards under the Company's 1988 Stock Plan for the
Company's senior and executive officers to provide long-term incentive awards in
amounts comparable to those awarded to executives of the companies included in
the SCA compensation analysis. Shares awarded under the program are subject to
forfeiture in certain circumstances and do not vest for ten years unless vesting
is accelerated by the Company's exceeding the median total
7
<PAGE> 8
stockholder return of other major financial institutions over rolling three year
performance cycles. See the description of the restricted stock on pages 29 and
30. In 1996, 75% of the original awards vested based on the Company's
stockholder return.
In addition, the Committee approved year-end stock option grants for the
named Executive Officers under the 1988 Stock Plan. In deciding the number of
Common Shares to award each executive officer, the Committee considered the
officer's performance during 1996, and their individual contribution toward
reaching the Company's goals, their overall level of compensation in comparison
to their peers, both within the Company and among the companies included in the
SCA compensation analysis. The options awarded during the last fiscal year to
each named Executive Officer are set forth in the table on page 28.
To the extent readily determinable and as one of the factors in its
consideration of compensation matters, the Compensation Committee considers the
anticipated tax treatment to the Company and to the executives of various
compensation. Some types of compensation and their deductibility depend upon the
timing of an executive's vesting or exercise of previously granted rights.
Further, interpretations of and changes in the tax laws also affect the
deductibility of compensation. To the extent reasonably practicable and to the
extent it is within the Committee's control, the Compensation Committee intends
to limit executive compensation in ordinary circumstances to that deductible
under Section 162(m) of the Code. In doing so, the Committee may utilize
alternatives (such as deferring compensation) to qualify executive compensation
for deductibility and may rely on grandfathering provisions with respect to
existing contractual commitments.
Compensation Committee of the Board
of Directors, Great Western
Financial Corporation
Willis B. Wood, Jr., Chairman
H. Frederick Christie
Stephen E. Frank
John V. Giovenco
Enrique Hernandez, Jr.
Charles D. Miller
8
<PAGE> 9
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
LOAN TRANSACTIONS
The following table shows as to certain of the Company's executive officers
and directors: (i) the largest aggregate amount of indebtedness to the Company
in excess of $60,000 outstanding from January 1, 1996 to March 31, 1997; (ii)
the nature of the indebtedness; (iii) the outstanding balance of the
indebtedness on March 31, 1997; and (iv) the annual rate of interest charged on
the indebtedness. Information concerning the indebtedness to the Company by
members of the Compensation Committee of the Board of Directors is given under
the caption "ELECTION OF DIRECTORS -- Compensation Committee Interlocks and
Insider Participation" on page 15.
<TABLE>
<CAPTION>
INDEBTEDNESS
OUTSTANDING
LARGEST AT
NAME OF EXECUTIVE AGGREGATE NATURE OF MARCH 31, INTEREST
OFFICER OR DIRECTOR INDEBTEDNESS($) INDEBTEDNESS(1) 1997($) RATE(%)(2)
- -------------------------------------------- --------------- --------------- ------------ ----------
<S> <C> <C> <C> <C>
David Alexander............................. 249,485 Residential 240,829 4.71
J. Lance Erikson............................ 787,500 Residential 782,598 4.81
222,098 Residential 215,340 4.71
Carl F. Geuther............................. 156,154 Residential 150,763 4.71
1,335,074 Residential 1,304,735 4.71
John F. Maher............................... 417,003 Residential 403,012 4.71
751,391 Residential 726,200 4.71
James F. Montgomery......................... 958,390 Residential 0
1,498,197 Residential 1,467,615 4.81
690,000 Residential 683,058 4.81
500,000 Unsecured 500,000 8.50
Michael M. Pappas........................... 900,000 Residential 893,330 4.81
204,347 Residential 198,323 4.71
A. William Schenck III...................... 613,000 Residential 600,502 4.81
1,212,000 Residential 1,188,638 4.81
</TABLE>
- ---------------
(1) Loans secured by the same residence are aggregated.
(2) Interest on these loans, except for Mr. Montgomery's prime rate unsecured
loan, is generally at monthly adjustable rates equal to the Company's cost
of funds plus .25%. This rate was approximately 2.22% to 2.42% below that on
similar loans to the public during 1996.
The residential loans described above were made pursuant to the Company's
Home Loan Program described on pages 32 and 33 and are secured by trust deeds or
mortgages on the respective residences of the named Directors and Executive
Officers.
Interest on Mr. Montgomery's unsecured, personal loan is payable annually
and the entire principal amount is payable on December 31, 1999 or, under
certain circumstances, at the end of the Consulting Period on December 31, 2000.
From time to time, directors, executive officers, members of their
immediate families and entities with which such persons are known by Great
Western or GWB to be affiliated or associated may obtain "margin" loans from a
subsidiary of Great Western, obtain secured and unsecured loans from GWB, place
interest bearing deposits with GWB, maintain checking accounts with GWB and
avail themselves of check guarantee and overdraft features allowed on these
accounts, all in accordance with applicable law. The transactions described in
this paragraph are all in the ordinary course of Great Western or GWB's business
and are made on terms substantially the same, including interest rate (which in
the case of all Great Western and GWB employees may, with respect to certain
types of loans, include a slight discount) and collateral, as those
9
<PAGE> 10
prevailing at the time for comparable transactions with other unaffiliated
persons and do not involve more than the normal risk of collectibility or
present other unfavorable features.
EMPLOYEE BENEFIT PLANS
The material which follows in this section describes certain provisions
made by the Company and its subsidiaries pursuant to certain stock option,
restricted stock, deferred compensation, employee savings, pension or other
incentive plans now in effect, that provide for severance, termination or Change
in Control benefits to the named Executive Officers, other than group life and
accident insurance, group hospitalization and similar group payments and
benefits.
STOCK BENEFIT PLANS
The 1988 Stock Plan provides for various types of stock incentives,
including stock options, restricted shares, bonus stock and performance shares.
The only awards granted to date under the 1988 Stock Plan have been stock
options and restricted stock (with performance vesting features). With respect
to options granted under the 1988 Stock Plan, the Administrator may, with the
consent of a holder, substitute awards or modify the terms and conditions of any
outstanding award to extend the exercisability and term (subject to the maximum
term limits), reduce the price, accelerate exercisability or vesting or preserve
benefits of the award. The 1988 Stock Plan provides for automatic acceleration
of the exercisability of awards and accelerated vesting of awards upon a Change
in Control or upon a qualifying termination of employment during the pendency of
a Potential Change in Control (or during the six-month period thereafter). Under
the 1988 Stock Plan, the terms "Change in Control" and "Potential Change in
Control" are defined as they are in Mr. Maher's employment agreement. Under the
terms of the Merger Agreement, consummation of the Washington Mutual Merger will
constitute a Change in Control for purposes of the 1988 Stock Plan.
OPTIONS
There were no grants of SARs to the named Executive Officers in 1996 and
the following market priced stock options were granted to the named Executive
Officers in 1996 based in part on performance in 1995 and 1996 (the first number
in each column represents the award for 1995 performance and the second number
represents the award for 1996 performance):
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F)
- ------------------------------- --------------- ------------ -------------- --------------- -----------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING GRANTED TO GRANT DATE
OPTIONS GRANTED EMPLOYEES IN EXERCISE PRICE PRESENT
NAME (#)(1) FISCAL YEAR ($/SHARE)(2) EXPIRATION DATE VALUE($)(3)
- ------------------------------- --------------- ------------ -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
John F. Maher.................. 175,000 4.58 23.375 01/23/06 $ 971,250
200,000 5.23 30.875 12/09/06 $ 1,334,000
Michael M. Pappas.............. 70,000 1.83 23.375 01/23/06 $ 388,500
50,000 1.31 30.875 12/09/06 $ 333,500
A. William Schenck III......... 70,000 1.83 23.375 01/23/06 $ 388,500
80,000 2.09 30.875 12/09/06 $ 533,600
Carl F. Geuther................ 60,000 1.57 23.375 01/23/06 $ 333,000
70,000 1.83 30.875 12/09/06 $ 466,900
J. Lance Erikson............... 40,000 1.05 23.375 01/23/06 $ 222,000
50,000 1.31 30.875 12/09/06 $ 333,500
</TABLE>
- ---------------
(1) These options vest and become exercisable in 25% installments on each of the
first four anniversaries of their grant, subject to acceleration in certain
circumstances such as a Change in Control. The options
10
<PAGE> 11
have a 10-year term, subject to earlier termination in certain circumstances
related to termination of employment. The instrument setting forth the terms
of the option may provide that the exercise price of the option may be
satisfied by delivery of previously owned shares or by the withholding of
shares having a fair market value at the date of exercise equal to such
exercise price. At the election of the optionee, the Company's tax
withholding obligation with respect to the exercise of the option may also
be satisfied by the withholding of shares having a fair market value at the
date of exercise equal to such obligation.
(2) All stock options were granted at the fair market value on the date of
grant.
(3) The shares were valued based on the Black-Scholes option pricing model
adapted for use in valuing executive stock options using the following
assumptions for the January 23, 1996 grant: the 52 week average stock price
of $19.82, three year historical average stock price volatility of .2288, a
three year historical average dividend yield of 3.63%, a risk-free rate
equal to the 52 week average of ten-year Treasury Bonds of 6.60% and an
option term of 10 years. The shares granted on December 9, 1996, were valued
based on the Black-Scholes option pricing model adapted for use valuing
executive stock options using the following assumptions: the 52 week average
stock price of $24.37, three year historical average stock price volatility
of .2319, a three year historical average dividend yield of 3.69%, a risk
free rate equal to the 52 week average of ten year Treasury Bonds of 6.53%
and an option term of 10 years. The valuation method is hypothetical.
The following table shows for each of the named Executive Officers the
shares acquired on exercise of options during 1996, the difference between the
exercise price and the market value of the underlying shares on the date of
exercise, and (as to outstanding options at December 31, 1996) the number of
unexercised options and the aggregate unrealized appreciation on "in-the-money,"
unexercised options held at such date:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
- ------------------------------------- --------- -------- -------------------- --------------------
NUMBER OF SECURITIES VALUE OF
SHARES UNDERLYING UNEXERCISED
ACQUIRED UNEXERCISED IN-THE-MONEY
ON OPTIONS AT FY-END OPTIONS AT FY-END
EXERCISE VALUE (#) EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED UNEXERCISABLE(1) UNEXERCISABLE(2)
- ------------------------------------- --------- -------- -------------------- --------------------
<S> <C> <C> <C> <C>
John F. Maher........................ 62,500 $433,241 358,542/450,000 $4,967,373/1,912,500
Michael M. Pappas.................... 50,000 $485,688 155,000/155,000 2,149,375/826,875
A. William Schenck III............... 0 0 32,262/246,786 245,998/1,131,743
Carl F. Geuther...................... 35,000 $252,125 171,000/165,000 2,381,625/770,625
J. Lance Erikson..................... 25,000 $139,767 89,010/110,000 122,604/472,500
</TABLE>
- ---------------
(1) The numbers shown in column (d) include all unexercised options held by the
named Executive Officers, 1,482,600 of which were "in the money." None of
the named Executive Officers holds any outstanding SARs.
(2) All values are based solely on the market value of the Common Shares at the
end of 1996, minus the exercise price of "in the money" options.
RESTRICTED STOCK
In January 1992, the Administrator first authorized awards of
performance-based restricted stock under the 1988 Stock Plan and established the
specific vesting provisions for such awards as described below. If the recipient
remained with the Company, the shares would vest completely 10 years after the
award date. Prior to that, they were subject to both accelerated vesting and
risk of forfeiture to the Company, in whole or in part, upon certain events. The
vesting was and is accelerated if and to the extent that the Company's common
stock performance, as measured by appreciation, dividends and other
distributions ("stockholder return"), over three-year performance cycles,
representing the three-year period ending December 31, 1995 and periodically
thereafter, exceeded and exceeds by specified amounts the stockholder return
(subject to certain adjustments)
11
<PAGE> 12
on common stocks of other designated banks, savings associations or related
holding companies (the "Peer Group"). If the Company's percentile ranking
relative to the Peer Group for the applicable three-year period equals or
exceeds the 50th percentile, the remaining performance-based restricted shares
vest in amounts ranging from 25% to 100% of the original award. Seventy-five
percent of the original awards vested in 1996, based on the Company's
stockholder return. The remainder will continue to vest under the terms of the
related agreement and a portion of the remaining award will vest in the event of
death or disability of the holder, at the rate of 20% per year. Vesting of these
awards may be accelerated in certain other circumstances, including upon a
Change in Control, or in the case of a qualifying termination of employment
during the pendency of a Potential Change in Control (or during the six-month
period thereafter) or upon retirement. Except as noted above, the unvested
performance-based restricted shares generally will be forfeited upon a
termination of employment (or, in Mr. Montgomery's case, termination of service
as a consultant and a director). The performance-based restricted shares are
registered to the recipient subject to transfer and forfeiture restrictions, but
are held by the Company until such restrictions lapse. The recipients are
entitled to dividends and have voting rights on these performance-based
restricted shares prior to the time the restrictions lapse. Under the terms of
the Merger Agreement, consummation of the Washington Mutual Merger will
constitute a Change in Control for purposes of the 1988 Stock Plan.
No awards of performance-based restricted stock or other long-term
incentive awards were granted to the named Executive Officers in 1996.
DEFERRED COMPENSATION PLANS
Under the Great Western deferred compensation plans, as amended to date,
participants are entitled to defer compensation until retirement, death, other
termination of employment or service, or until specified dates. Participants
receive a fixed rate yield based on the average annual interest rate of ten-year
United States Treasury Notes for the previous ten years. An enhanced yield of up
to 125% of the fixed rate yield will be payable in the event of death, under
certain circumstances upon retirement after age 55, and upon termination of
employment after plan participation for a specified number of years. The plans
also provide for Company matching contributions on deferred compensation similar
to that provided under the Employee Savings Incentive Plan described below. The
Senior Officers' Deferred Compensation Plan supplements benefits payable to
Executive Officers participating in the Employee Savings Incentive Plan (the
"Savings Plan") to the extent that Savings Plan benefits are reduced under
applicable Code limitations. The deferred compensation plans provide for full
vesting of employer matching contributions upon a Change in Control or upon a
qualifying termination of employment during the pendency of a Potential Change
in Control (or during the six-month period thereafter). (Under the deferred
compensation plans, the terms "Change in Control" and "Potential Change in
Control" are defined as they are in Mr. Maher's employment agreement.) The plans
also permit participants to make an advance irrevocable election to receive a
cash lump sum payment of their account balance within 45 days after a Change in
Control, and to elect within two years after a Change in Control to withdraw
their account balance in a lump sum with a 5% penalty; if a participant's
employment or service has terminated because of Retirement (as defined in the
plans) at the time of such election, such participant is entitled to the
enhanced yield on his or her account. During the pendency of a Potential Change
in Control, and for six months thereafter, and for a period of two years
following a Change in Control, the plans may not be terminated, nor may they be
adversely amended without the consent of two-thirds of the participants. Mr.
Montgomery's Consulting Agreement and Mr. Maher's employment agreement, however,
provide for the preservation of previously elected deferrals and payment options
in the event of a Change in Control. The plans also provide for pension benefits
based on deferred compensation similar to those provided under the Company's
Retirement Plan (described below). Under the terms of the Merger Agreement,
consummation of the Washington Mutual Merger will constitute a Change in Control
for purposes of the deferred compensation plans.
EMPLOYEE SAVINGS INCENTIVE PLAN
Under the Savings Plan, eligible employees may authorize payroll deductions
for contributions which, at the participant's direction, may be invested in
money market, equity, debt, balanced and Company stock
12
<PAGE> 13
funds. Under the Savings Plan, employee contributions are matched by the Company
in an amount equal to 50% of such contribution up to a maximum contribution of
6% of the employee's base salary, including overtime. The Board of Directors may
authorize annually an additional contribution in an amount not to exceed the
Company's mandatory contribution. Matching contributions vest at the rate of 30%
for each of the first two years of participation in the Savings Plan and the
remaining 40% vests in the third year of participation. Certain participant
borrowings against vested benefits are permitted under the Savings Plan.
RETIREMENT PLAN
The Retirement Plan is a non-contributory group pension plan providing for
monthly benefits in the event of retirement or, at the election of the
participant, a cash balance at retirement or termination of employment. On
January 1, 1997, the Company converted the Retirement Plan to a cash balance
plan based upon the results of extensive research regarding employee
demographics and competitive practices among the Company's peers. Benefits under
the Retirement Plan depend on factors such as length of service, average monthly
wage base and certain Social Security benefits. Employees over age 21 are
eligible to participate after one year of service. Contributions to the plan
trust are made by the Company on an actuarial basis and in an amount to obtain
the maximum federal income tax deduction. Accrued benefits vest fully after five
years of participation and employees may elect to take the value of their
account as a lump sum payment if they terminate their employment with the
Company. Forfeitures of non-vested benefits are applied to reduce the Company's
contributions.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Supplemental Executive Retirement Plan, as amended to date (the
"SERP"), provides a target retirement benefit at the participant's Normal
Retirement Date (defined under the SERP as following the later to occur of the
attainment of age 60 or 20 years of service for Mr. Maher and the later to occur
of the attainment of age 62 or 25 years of service for the other named Executive
Officers) equal to a percentage of average salary and bonus (65% for Mr. Maher
and 60% for the other named Executive Officers). The SERP provides that Mr.
Schenck will be credited for service with a previous employer. Under the terms
of the SERP, upon a qualifying termination of employment within the two-year
period following a Change in Control (or during the pendency of a Potential
Change in Control or during the six-month period thereafter), the named
Executive Officers will become entitled to receive retirement benefits with no
reduction for early retirement. (Under the SERP, the terms "Change in Control"
and "Potential Change in Control" are defined as they are in Mr. Maher's
employment agreement.) In addition, the SERP provides that during the pendency
of a Potential Change in Control, and for six months thereafter, and for a
period of two years following a Change in Control, the SERP may not be
terminated, nor may it be adversely amended without the approval of two-thirds
of SERP participants. The SERP also provides the participants with retirement
benefits that would otherwise exceed the annual limit on such benefits imposed
by the Code. Under the terms of the Merger Agreement, consummation of the
Washington Mutual Merger will constitute a Change in Control for purposes of the
SERP.
PENSION TABLES
The amounts shown in the summary compensation table do not include any
amounts expensed by the Company under the Company's Retirement Plan or under the
SERP, both of which are defined benefit plans, since the amount of the accruals
thereunder were not determined on an individual basis by the actuaries for
either of the plans during 1996. The following table illustrates the total
annual retirement benefits which would be provided under the benefit formula
described in the Retirement Plan and SERP to the named Executive Officers (other
than Mr. Maher) in various earnings classifications upon normal retirement in
1996. The benefit formula presently in both plans provides for an offset of
certain Social Security benefits, and
13
<PAGE> 14
Mr. Schenck's benefits under the SERP will be offset by benefits payable under
retirement plans of a previous employer. The amounts shown in the following
table do not reflect these offsets.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
--------------------------------
AVERAGE PAY FOR 15 25 YEARS
RETIREMENT PLAN PURPOSES YEARS 20 YEARS OR MORE
------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
$350,000.............................................. 126,000 168,000 210,000
$400,000.............................................. 144,000 192,000 240,000
$500,000.............................................. 180,000 240,000 300,000
$600,000.............................................. 216,000 288,000 360,000
$700,000.............................................. 252,000 336,000 420,000
$800,000.............................................. 288,000 384,000 480,000
</TABLE>
The following table illustrates the total annual retirement benefits which
would be provided under both plans to Mr. Maher. The table below does not
include the amount of the annual benefit ($46,600 based on present Directors'
fees) that will be payable to Mr. Maher under the Directors' Retirement Plan.
<TABLE>
<CAPTION>
AVERAGE PAY FOR YEARS OF CREDITED SERVICE
RETIREMENT PLAN PURPOSES 20 YEARS OR MORE
-------------------------------------------------------------- -------------------------
<S> <C>
$1,400,000.................................................... 910,000
$1,600,000.................................................... 1,040,000
$1,800,000.................................................... 1,170,000
</TABLE>
Except as noted in the immediately succeeding sentence, the compensation
covered by the benefit formula under the combined retirement plans is salary and
bonus compensation (reduced by Social Security benefits), which is reported for
the past three fiscal years in columns (c) and (d) in the summary compensation
table on page 20. Mr. Maher's employment agreement provides that, for purposes
of calculating his benefits under the SERP, the following levels of compensation
will be assumed: on any date in 1997, SERP benefits will be based on annual
compensation of $1,462,000; on any date in 1998, SERP benefits will be based on
actual compensation for 1997; on any date in 1999, SERP benefits will be based
on the average actual compensation for 1997 and 1998; and for any date after
1999, SERP benefits will be based on the definition of "average monthly
compensation" set forth in the SERP. The named Executive Officers have the
following number of years of credited service: Mr. Maher, 23 years; Mr. Pappas,
42 years; Mr. Schenck, 28 years; Mr. Geuther, 22 years; and Mr. Erikson, 28
years.
UMBRELLA TRUSTS
The Board has authorized the establishment of two separate Umbrella Trusts
(the "Trusts") as a security arrangement for some or all of the participants in
the Company's SERP, Retirement Restoration Plan, Director's Retirement Plan,
supplemental retirement benefit for Mr. Gryp, the employment agreements with the
executive officers, the consulting agreement with Mr. Montgomery and the
deferred compensation plans (collectively, the "Plans").
The Trusts, as amended to date, provide for the full funding of benefits
provided through the Trusts upon a Potential Change in Control, subject to
return following the expiration of the Potential Change in Control Period
(generally defined in the Trusts as six months following the date on which such
Potential Change in Control ceases to exist, if no Change in Control has
occurred during such period). (Under the Trusts, the terms "Change in Control"
and "Potential Change in Control" are defined as they are in Mr. Maher's
employment agreement.) In addition, the Trusts provide that within 30 days
following the end of each year following a Change in Control, the Company shall
be required to contribute to the Trusts the amount, when added to the assets in
the Trusts, needed to provide the benefits under the Plans. Following a Change
in Control or during the pendency of a Potential Change in Control (and for 6
months thereafter), the amended Trusts may not be adversely amended without the
consent of two-thirds of the participants in the Plans.
Under the terms of the Trusts, the Trustee shall hold the trust assets for
the benefit of the participants in the Plans unless the Company is unable to pay
its debts as they become due or the Company is the subject of a
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<PAGE> 15
pending proceeding as a debtor under the federal Bankruptcy Code. If either of
those events occurs, the Trustee shall hold the trust assets for the benefit of
the general creditors of the Company, which may include participants in the
Plans. For purposes of the Trusts, a Potential Change in Control has occurred.
HOME LOAN PROGRAM
The Company has a Home Loan Program (the "Program") permitting secured
loans to employees, officers and Directors at adjustable rates beginning at .25%
over the Company's cost of funds. Loans under the Program may be made to finance
the employee participant's principal residence and generally must be secured by
a first trust deed or mortgage on such residence. Executive officers and
directors may obtain loans from Great Western for a primary residence in amounts
up to 90% of the first $1,000,000 of appraised value and 80% of the excess
appraised value. Executive officers and directors may also obtain loans for
secondary residences in amounts up to 90% of the first $500,000 in appraised
value, 80% of the next $500,000 in appraised value and 70% of the excess
appraised value. Loans granted under the Program to executive officers and
directors are reviewed and approved by the Board of Directors. See "ELECTION OF
DIRECTORS -- Compensation Committee Interlocks and Insider Participation" and
"CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS" for information regarding
loans to directors and executive officers of the Company. Program participants
are disqualified from further participation after certain terminations of
employment or service, however, the Program, as amended to date, provides all
participants with protection from adverse amendments to the terms of existing
loans or suspension of the Program following a Change in Control, protection
against disqualification from participation following a termination without
cause or a reduction in hours to less than 20 1/2 per week following a Change in
Control, and protection against disqualification from participation following a
termination during the pendency of a Potential Change in Control (or during the
six-month period thereafter). Under the Program, the terms "Change in Control"
and "Potential Change in Control" are defined as they are in Mr. Maher's
employment agreement. Under the terms of the Merger Agreement, consummation of
the Washington Mutual Merger will constitute a Change in Control for purposes of
the Program. The Company does not expect to approve any additional loans under
the Program pending consummation of the Washington Mutual Merger.
[LEFT BLANK INTENTIONALLY]
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<PAGE> 1
EXHIBIT 2
INTERESTS OF CERTAIN PERSONS IN THE WASHINGTON MUTUAL/GREAT WESTERN MERGER
Certain members of Great Western's management and the Great Western Board,
respectively, may be deemed to have certain interests in the Washington
Mutual/Great Western Merger that are in addition to their interests as
stockholders of Great Western generally. The Great Western Board was aware of
these interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby.
Board of Directors. Pursuant to the terms of the Merger Agreement, members
of the Washington Mutual Board will continue to serve on the Washington Mutual
Board and, at the Effective Time, Washington Mutual will take all action
necessary to appoint four representatives of Great Western, mutually agreeable
to Washington Mutual and Great Western, to the Washington Mutual Board. See
"Management and Operations of Washington Mutual Following the Washington
Mutual/Great Western Merger."
Indemnification; Directors' and Officers' Insurance. The Merger Agreement
requires that Washington Mutual and Great Western, to the extent set forth in
the following paragraph, cooperate and use their best efforts to defend and
respond to any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, whether asserted or
arising before or after the Effective Time (each a "Claim"), against each
present and former director, officer and employee of Great Western and its
subsidiaries (each an "Indemnified Party"), arising in whole or in part out of
(i) his or her actions as such a director, officer, employee, or serving on
behalf of such a person, or (ii) the Merger Agreement or any actions in
connection therewith.
The Merger Agreement also requires Washington Mutual after the Effective
Time to indemnify and hold harmless, as and to the fullest extent permitted by
the corporate governance documents of Great Western and its subsidiaries, the
indemnification letters between Great Western and each of its directors and
executive officers and by law, each Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including reasonable attorneys'
fees and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law upon receipt of an undertaking from such Indemnified Party to
repay such advanced expenses if it is finally and unappealably determined that
such Indemnified Party was not entitled to indemnification hereunder),
judgments, fines and amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or investigation, and in
the event of any such threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective Time),
the Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with Washington Mutual except as provided in the Merger Agreement.
These indemnification obligations of Washington Mutual will continue in
full force for at least six years after the Effective Time and will apply to any
Claim asserted or made within such period (including, without limitation, Claims
arising out of or pertaining to the transactions contemplated by the Merger
Agreement).
The Merger Agreement requires that Washington Mutual use its best efforts
to cause the persons serving as officers and directors of Great Western
immediately prior to the Effective Time to be covered for a period of six years
from the Effective Time by the directors' and officers' liability insurance
policy maintained by Great Western (provided that Washington Mutual may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not less advantageous to such
directors and officers of Great Western than the terms and conditions of such
existing policy) with respect to acts or omissions occurring prior to the
Effective Time which were committed by such officers and directors in their
capacity as such.
Employment Agreements. Great Western has entered into employment
agreements (the "EMC Agreements") with each of its seven executive officers
(Messrs. Maher, Pappas, Schenck, Geuther, Sims, Erikson and Ms. Studenmund) who
constitute the members of Great Western's Executive Management Committee, which
provide, among other things, for severance payments upon certain terminations of
employment prior to, or during the two year period (three years, in the case of
Mr. Maher's agreement)
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<PAGE> 2
following, a change in control of Great Western. In order to qualify for the
severance benefits described below, termination of employment must be (i) by
Great Western or a successor employer other than for "cause" (as such term is
defined in the EMC Agreements) or (ii) by the executive because of a material
breach of the EMC Agreement by Great Western or a successor employer which is
not cured within fifteen days after receipt of notice thereof. The EMC
Agreements provide that, following a qualifying termination, the executive is
entitled to receive (a) a lump sum payment equal to the product of (1) the sum
of (A) the executive's annual base salary plus (B) the executive's target bonus
under Great Western's Annual Incentive Plan for Executive Officers (the
"Executive Officer Incentive Plan") in respect of the year in which such
termination occurs (or the year in which the change in control occurs, whichever
is greater) and (2) the number three, and (b) a pro-rata target bonus under the
Executive Officer Incentive Plan in respect of the year in which such
termination occurs, provided, that if the termination occurs during the same
year in which the change in control occurs, the amount described in this clause
(b) will be offset by any payments received under the Executive Officer
Incentive Plan in connection with the change in control. In addition, the
executive would be entitled to continuation of welfare-type benefits for three
years following such termination. Mr. Maher's EMC Agreement provides that he may
elect to terminate his employment, without a material breach by Great Western or
a successor employer, and receive the benefits described above during the period
commencing no earlier than eighteen months following a change in control of
Great Western and ending no later than the second anniversary of such change in
control; provided, that the eighteen-month minimum period shall not apply if, at
any time during the first year following such change in control, more than 50%
of the non-employee members of the Great Western Board as of the date
immediately preceding the change in control are no longer members of the Great
Western Board; and provided further, that, if Mr. Maher elects to so terminate
his EMC Agreement, cash benefits which would become payable will be reduced by
25%. If any payments received by an executive under his or her EMC Agreement or
any other benefit plan, agreement or arrangement in which such executive
participates would be subject to an excise tax ("Excise Tax") under Section 4999
of the Code, he or she will be entitled to receive any additional amount
necessary to make such executive whole with respect to such Excise Tax. If the
value of the aggregate payments which are contingent upon a change in control of
Great Western ("parachute payments") is less than specified Code limits that
currently approximate three times the average of an executive's compensation for
the prior five years (the "Section 280G Limit") for any reason (including that
some or all of such entitlement does not constitute a parachute payment), the
executive is entitled to receive the Section 280G Limit. Consummation of the
Washington Mutual/Great Western Merger will constitute a change in control of
Great Western for purposes of the EMC Agreements. If the employment of the seven
executive officers of Great Western were terminated on or about the effective
date of the Washington Mutual/Great Western Merger under circumstances entitling
them to severance benefits under the EMC Agreements, such officers would be
entitled to the following approximate amounts in respect of the benefits
described in clause (a) above: Mr. Maher, $4,386,000; Mr. Pappas, $2,160,000;
Mr. Schenck, $2,160,000; Mr. Geuther, $1,920,000; Mr. Sims, $1,632,000; Mr.
Erikson, $1,512,000; and Ms. Studenmund, $1,680,000. There would be no amounts
payable in respect of clause (b) under these circumstances; the pro-rata target
bonus amounts payable to such officers upon a change in control of Great Western
are set forth below under "Great Western Cash-Based Incentive Plans."
Consulting Agreement. Great Western has entered into a consulting
agreement (the "Consulting Agreement") with Mr. James F. Montgomery, the
Chairman and former Chief Executive of Great Western, that has a term which
expires December 31, 2000 and which provides, among other things, that Mr.
Montgomery will serve as Chairman of the Board of Great Western for a term
ending no earlier than December 31, 1997. If, during the term of the Consulting
Agreement, Great Western or its successor materially breaches the Consulting
Agreement and fails to cure such breach within fifteen days of notice thereof,
Mr. Montgomery is entitled to terminate the Consulting Agreement and receive,
among other things, his consulting fees ($485,000 per year) and continuation of
his benefits under Great Western's executive medical program until the
expiration of the term. If, during the term of the Consulting Agreement, there
should occur a change in control of Great Western, Mr. Montgomery may, within 6
months after he first has knowledge of such event, elect to terminate the
Consulting Agreement and receive the benefits described in the immediately
preceding sentence. If the Consulting Agreement were terminated on or about the
effective
2
<PAGE> 3
date of the Washington Mutual/Great Western Merger under circumstances entitling
him to termination benefits described above, Mr. Montgomery would be entitled to
approximately $1,657,000 in respect of consulting fees.
Supplemental Retirement Plans. Great Western's Supplemental Executive
Retirement Plan (the "SERP") provides that if, prior to, or within 24 months
following, a change in control of Great Western, an executive officer's
employment is terminated under circumstances which would entitle such officer to
receive the severance benefits payable under his or her EMC Agreement, such
officer will be entitled to receive (i) for executive officers who have attained
age 55 for purposes of the SERP, immediate commencement of retirement benefits
that are not actuarially reduced for early retirement, or (ii) for executive
officers who have not attained age 55 for purposes of the SERP, vesting of his
or her accrued retirement benefits as of such termination and commencement of
payment on such officer's attainment (or deemed attainment) of age 55, without
reduction for commencement prior to normal retirement. SERP participants will be
entitled to an additional 3 years of age and service credit as of their
termination date in calculating the amount and commencement date of their
retirement benefits. If the employment of the seven executive officers of Great
Western were terminated on or about the effective date of the Washington
Mutual/Great Western Merger under circumstances entitling them to the benefits
described above under the SERP, such officers would be entitled to the following
approximate annual benefit: Mr. Maher, $950,000; Mr. Pappas, $357,870; Mr.
Schenck, $324,029; Mr. Geuther, $310,848; Mr. Sims, $39,596; Mr. Erikson,
$238,252; and Ms. Studenmund, $121,864. The preceding amounts represent the
aggregate benefit which the individual will be entitled to receive under the
SERP generally in the form of a single-life annuity: these aggregate amounts are
subject to adjustment based on actual 1997 compensation, and amounts received by
the individual from Great Western's tax-qualified retirement plans (and for Mr.
Schenck and Ms. Studenmund, benefits paid from tax qualified retirement plans of
previous employers) and Social Security payments will serve to offset and reduce
these SERP benefits. Great Western's Retirement Restoration Plan provides for
the vesting of benefits payable thereunder if a participant incurs a qualifying
termination of employment prior to, or within 24 months following, a change in
control of Great Western. Consummation of the Washington Mutual/Great Western
Merger will constitute a change in control of Great Western for purposes of
these plans.
Deferred Compensation Plans. Great Western's deferred compensation plans
provide for deferral until retirement of portions of a participant's income.
Employee participants may also receive employer matching contributions under the
plans. Amounts deferred under each of these plans are credited with earnings
based upon rates applicable to U.S. Treasury Notes, which rates increase based
upon years of participation in such plan. The plans provide for full vesting
(where applicable) of employer matching contributions upon a change in control
of Great Western or if an employee participant incurs a termination of
employment under circumstances that would entitle such employee participant to
receive severance benefits under his or her EMC Agreement (if such participant
is an executive officer) or, if the employee is not an executive officer, under
the Special Severance Plan (as defined below) (whether or not a participant in
such Plan). In addition, if an employee participant's employment is terminated
under the circumstances described in the immediately preceding sentence, such
participant is entitled to be credited with the fully enhanced earnings rate on
his or her account balance. A participant may, prior to a change in control,
elect to receive the full amount of his or her account balances in a lump sum
within 45 days following such change in control, and may, during the 2-year
period following a change in control, elect to receive 95% of his or her account
balances in a lump sum. Consummation of the Washington Mutual/Great Western
Merger will constitute a change in control of Great Western for purposes of
these plans. The account balances of the executive officers of Great Western
under the deferred compensation plans as of the effective date of the Washington
Mutual/Great Western Merger will be approximately the following (all of these
amounts became vested prior to the Washington Mutual/Great Western Merger except
as noted in the immediately following sentence): Mr. Maher, $4,758,000; Mr.
Pappas, $132,000; Mr. Schenck, $89,000; Mr. Geuther, $794,000; Mr. Sims, $0; Mr.
Erikson, $29,000; and Ms. Studenmund, $106,000. The following approximate
amounts represent that portion of the executive officers' total account balances
which is attributable to crediting the fully enhanced earnings rate: Mr. Maher,
$266,000; Mr. Pappas, $0; Mr. Schenck, $2,500; Mr. Geuther, $39,000; Mr.
Erikson, $0; and Ms. Studenmund, $2,400. The following fully vested amounts are
currently credited to the accounts of the non-employee members of the Great
Western Board: Mr. Alexander, $723,500; Mr. Christie, $454,500;
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<PAGE> 4
Mr. Frank, $189,100; Mr. Giovenco, $831,200; Mr. Gryp, $187,200; Mr. Hernandez,
$187,600; Mr. Miller, $490,600; Mr. Montgomery, $2,490,600; Ms. Siegel,
$204,500; and Mr. Wood, $209,400.
Great Western Equity-Based Incentive Awards. The provisions of the Merger
Agreement relating to the conversion of Great Western Stock Options outstanding
under Great Western Stock Plans into stock options for Washington Mutual Common
Stock are described under "The Washington Mutual/Great Western
Merger -- Conversion of Great Western Capital Stock." Pursuant to the terms of
the Great Western Stock Plans, upon consummation of the Washington Mutual/Great
Western Merger, each Great Western Common Stock Option held by employees and
directors will become immediately exercisable, all shares of restricted stock
will immediately vest free of restrictions and all other awards granted
thereunder will become fully vested and exercisable. As of April 1, 1997, the
seven executive officers of Great Western held unvested Great Western Stock
Options with respect to the following number of shares of Great Western Common
Stock at the indicated weighted average exercise price: Mr. Maher, 406,250
shares at $25.821; Mr. Pappas, 137,500 shares at $24.384; Mr. Schenck, 197,024
shares at $25.765; Mr. Geuther, 150,000 shares at $25.300; Mr. Sims, 60,028
shares at $31.250, Mr. Erikson, 100,000 shares at $25.775; and Ms. Studenmund,
97,500 shares at $27.846. As of April 1, 1997, certain of these executive
officers of Great Western held shares of restricted stock, as follows: Mr.
Maher, 43,750 shares; Mr. Pappas, 18,750 shares; Mr. Schenck, 5,386 shares, Mr.
Geuther, 15,000 shares; and Mr. Erikson, 7,500 shares. As of April 1, 1997, all
other employees of Great Western, as a group, held unvested Great Western Stock
Options with respect to 3,079,226 shares at a weighted average exercise price of
$25.082. As of April 1, 1997, Mr. Montgomery held unvested Great Western Stock
Options with respect to 153,750 shares at a weighted average exercise price of
$20.436, and held 43,750 shares of restricted stock; and each other non-employee
member of the Great Western Board held unvested Great Western Stock Options with
respect to 3,750 shares at a weighted average exercise price of $27.875.
Great Western Cash-Based Incentive Awards. Great Western maintains
separate cash-based incentive plans for the benefit of its executive officers
and its subsidiaries' senior officers, respectively. Each of these plans
provides that, within five days following a change in control of Great Western,
a participant will receive a pro-rata portion of such participant's target bonus
for the year in which such change in control occurs. The consummation of the
Washington Mutual/Great Western Merger will constitute a change in control of
Great Western for purposes of these cash-based incentive plans. Assuming that
the consummation of the Washington Mutual/Great Western Merger takes place on
the date currently anticipated, the seven executive officers of Great Western
would be entitled to receive, within five days thereafter, the following
approximate amounts in respect of the pro-rata portion of such individual's 1997
target bonus: Mr. Maher, $351,000; Mr. Pappas, $158,000; Mr. Schenck, $146,000;
Mr. Geuther; $140,000; Mr. Sims, $119,000; Mr. Erikson, $110,000; and Ms.
Studenmund, $123,000. These amounts are in addition to any severance benefits
which may be paid to executive officers under the EMC Agreements, to
participants in the Special Severance Plan and to certain participants under the
Severance Plan (each as defined below); however, the amounts payable upon a
change in control of Great Western under these cash-based incentive plans will
offset any pro-rata bonus which may become payable under the EMC Agreements and
the Special Severance Plan as a part of severance benefits, if such pro-rata
bonus becomes payable during the year in which a change in control occurs.
Umbrella Trusts. Great Western maintains two "rabbi trusts" (the "Trusts")
for the purposes of funding benefits payable under the following Great Western
benefit plans and agreements: the EMC Agreements; the Great Western deferred
compensation plans; the SERP; the Retirement Restoration Plan; the Consulting
Agreement; supplemental retirement benefit for Mr. Firmin A. Gryp, a director of
Great Western; and Great Western's retirement plan for directors. Each of the
Trusts provides for full funding thereof upon the occurrence of certain events
which would anticipate a change in control of Great Western. The Trusts are
funding vehicles for benefits payable to participants in the plans and
agreements funded thereby and do not provide any separate or additional
benefits. The delivery of the Original Ahmanson Proposal on February 17, 1997
constituted such an event.
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<PAGE> 5
EMPLOYEE MATTERS
Employee Benefit Plans. The Merger Agreement provides that for a period of
at least one year from and after the Effective Time, Washington Mutual will
provide to employees of Great Western immediately prior to the Effective Time
("Great Western Employees") compensation and benefits on terms no less favorable
in the aggregate than those provided to similarly situated employees of
Washington Mutual. For purposes of all employee benefit plans of Washington
Mutual or its subsidiaries in which Great Western Employees participate from and
after the Effective Time (including all policies and employee fringe benefit
programs, including vacation policies, of Washington Mutual or its subsidiaries
but excluding Washington Mutual's Service Award Plan) and under which an
employee's benefit depends, in whole or in part, on length of service, credit
will be given to Great Western Employees for service previously credited with
Great Western or its subsidiaries prior to the Effective Time to the extent that
such crediting of service does not result in duplication of benefits, provided
that Washington Mutual will determine each Great Western Employee's length of
service in a manner consistent with Washington Mutual's customary practice with
respect to its employees. Washington Mutual will also cause each employee
benefit plan in which Great Western Employees participate from and after the
Effective Time to waive (i) any preexisting condition restriction which was
waived under the terms of any analogous Great Western employee benefit plan
immediately prior to the Effective Time or (ii) any waiting period limitation
which would otherwise be applicable to a Great Western Employee on or after the
Effective Time to the extent such Great Western Employee had satisfied any
similar waiting period limitation under an analogous Great Western employee
benefit plan prior to the Effective Time. For a period of three years, in the
case of those beneficiaries who are entitled to participate in such program
pursuant to employment agreements, or two years, in the case of those
beneficiaries who are otherwise entitled to participate in such program,
commencing on the Effective Time, Washington Mutual has agreed that it will
continue to maintain Great Western's Executive Medical Program, on terms no less
favorable than those in effect as of March 5, 1997, for the benefit of those
Great Western Employees who are as of the date of the Merger Agreement eligible
to participate in such Program.
Pursuant to the Merger Agreement, Washington Mutual has agreed to honor in
accordance with their terms all of Great Western's employee benefit plans
("Great Western Plans"), provided that Washington Mutual will be entitled to
terminate such plans, agreements and arrangements in accordance with their terms
and applicable law. In addition, Washington Mutual and Great Western have agreed
that consummation of the Washington Mutual/Great Western Merger will constitute
a "Change in Control" for purposes of Great Western's employee benefit plans
that contain change in control provisions and have agreed to honor such change
in control provisions, including, but not limited to, the accelerated vesting
and/or payment of equity-based awards under Great Western's employee benefit
plans. Great Western has agreed to make no further mortgage loans to employees
under the Great Western employee home loan program; to amend the Great Western
retiree medical plans so that no additional retirees shall become entitled to
continuing medical insurance benefits thereunder; and to amend Great Western's
401(k) plan prior to Closing so that participant loans are no longer available.
Severance Plans. Great Western has adopted for the benefit of its senior
vice presidents (and officers of equivalent rank) and first vice presidents (and
officers of equivalent rank) a severance plan (the "Special Severance Plan")
which provides for certain benefits to be paid and provided in the event of a
qualifying termination of employment prior to, or during the two-year period
following, a change in control of Great Western. Approximately 33 Great Western
employees participate in the Special Severance Plan at the senior vice president
level, and approximately 81 Great Western employees participate in the Special
Severance Plan at the first vice president level. In order to qualify for the
severance benefits described below, termination of employment must be (i) by
Great Western or a successor employer other than for "cause" or (ii) by the
executive for "good reason" (as each such term is defined in the Special
Severance Plan). The Special Severance Plan provides that, following a
qualifying termination, a participant is entitled to receive (a) a lump sum
payment equal to two times (for senior vice presidents and officers of
equivalent rank) or one and one-half times (for first vice presidents and
officers of equivalent rank) the sum of (1) such executive's annual base salary
and (2) such executive's target bonus under Great Western's annual incentive
program for the year in which the termination of employment occurs (or the year
in which the change in control occurs,
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<PAGE> 6
whichever is higher), and (b) a pro-rata bonus for the year during which the
termination of employment occurs, provided, that if the termination occurs
during the same year in which the change in control occurs, the amount described
in this clause (b) will be offset by any payments received under Great Western's
annual incentive program in connection with the change in control. In addition,
the executive will be entitled to the continuation of welfare-type benefits for
24 months (in the case of senior vice presidents and officers of equivalent
rank) or 18 months (in the case of first vice presidents and officers of
equivalent rank). The Special Severance Plan provides that no payment will be
made to a participant that would be nondeductible by reason of Section 280G of
the Code. Consummation of the Washington Mutual/Great Western Merger will
constitute a change in control of Great Western for purposes of the Special
Severance Plan.
Great Western has also adopted a broad-based severance plan (the "Severance
Plan") for the benefit of eligible Great Western Employees who are not offered a
comparable position by an acquiring company or whose employment is terminated
within twelve months of a change in control of Great Western. Eligible employees
may receive the following benefits and payments: 60 days' non-working notice
pay; one month's salary for every full year of service, payable at such
employee's election in a lump sum or pursuant to Great Western's payroll
policies (subject to a four-month minimum and sixteen-month maximum);
continuation of group insurance coverage for a period corresponding to the
aggregate number of months of non-working notice pay and severance pay (but not
if severance is paid in a lump sum); additional contribution credits under Great
Western's retirement plan and credit for additional service for purposes of
calculating benefits thereunder; extension of mortgage loans under Great
Western's employee home loan program so long as the employee resides in the
residence; and certain other benefits.
[LEFT BLANK INTENTIONALLY]
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EXHIBIT 4
[GREAT WESTERN LOGO]
MAY 20, 1997
Dear Great Western Stockholder:
As you undoubtedly know, on March 6, 1997, Great Western Financial
Corporation announced that it had entered into a merger agreement with
Washington Mutual, Inc. pursuant to which Great Western would merge with a
subsidiary of Washington Mutual and each of your shares of Great Western common
stock would be converted into 0.9 shares of Washington Mutual common stock.
On May 12, 1997, H.F. Ahmanson & Company announced that it intended to
commence an unsolicited exchange offer in which holders of Great Western common
stock would have the right to exchange each of their shares for not less than
1.10 nor more than 1.2 shares of Ahmanson common stock. The proposed exchange
offer contains the same financial terms as Ahmanson's previously announced
unsolicited merger proposal.
Your Board of Directors believes that the merger with Washington Mutual is
in the best interests of Great Western and its stockholders. Accordingly, the
Board recommends that you reject the Ahmanson exchange offer and, if and when
such offer is commenced, not tender any of your shares to Ahmanson pursuant to
its exchange offer.
The factors considered by the Board of Directors in determining to approve
the merger with Washington Mutual and in rejecting Ahmanson's proposed exchange
offer are more fully described in the Schedule 14D-9 filed by Great Western with
the Securities and Exchange Commission and enclosed with this letter. We urge
you to read carefully the Schedule 14D-9 in its entirety so that you will be
fully informed as to the Board's recommendation.
At a Special Meeting of Great Western's Stockholders scheduled to be held
on June 13, 1997, stockholders will have the opportunity to vote on the merger
with Washington Mutual. A Joint Proxy Statement/Prospectus of Great Western and
Washington Mutual has been mailed to Great Western's stockholders of record as
of May 9, 1997 in connection with such meeting.
Very Truly Yours,
<TABLE>
<S> <C>
/s/ John F. Maher /s/ James F. Montgomery
John F. Maher James F. Montgomery
President and Chief Chairman of the Board
Executive Officer
</TABLE>
<PAGE> 1
EXHIBIT 5
FOR IMMEDIATE RELEASE MAY 20, 1997
Contact: Ian Campbell (818) 775-3773
Charlie Coleman (818) 775-3766
GREAT WESTERN BOARD REJECTS
AHMANSON'S PROPOSED EXCHANGE OFFER
REAFFIRMS COMMITMENT TO WASHINGTON MUTUAL MERGER
CHATSWORTH, CALIF. -- Great Western Financial Corporation (NYSE: GWF) today
announced that its Board of Directors, by unanimous vote of those directors
present, determined that H.F. Ahmanson & Company's proposed exchange offer,
which contains the same financial terms as Ahmanson's unsolicited merger
proposal, is not in the best interests of Great Western and its stockholders.
The Board, by unanimous vote of those directors present, recommended that Great
Western stockholders reject Ahmanson's proposed exchange offer and, if and when
that offer is commenced, not tender their Great Western shares to Ahmanson.
The Board also reaffirmed its determination that the terms of its announced
merger with Washington Mutual, Inc. (Nasdaq: WAMU) are fair to, and in the best
interests of, Great Western and its stockholders.
Great Western said: "In sharp contrast to Ahmanson's unsolicited proposal,
our merger with Washington Mutual makes compelling economic and strategic sense
for Great Western stockholders. Washington Mutual, with a superior record of
stockholder returns, dividend history, financial strength, market valuation and
cost management, is clearly the superior partner. We remain strongly committed
to our merger with Washington Mutual and look forward to the upcoming
stockholder vote on June 13, 1997."
With assets of $42.9 billion, Great Western Financial Corporation is a
diversified financial services company operating more than 1,150 mortgage
lending, retail banking, and consumer finance offices nationwide. Great
Western's principal subsidiary, Great Western Bank, is a mortgage-oriented
consumer bank with banking branch networks in California and Florida.
<PAGE> 1
EXHIBIT 6
Goldman, Sachs & Co. / 85 Broad Street / New York, New York 10004
Tel: 212-902-1000 / Fax: 212-357-4449
[GOLDMAN SACHS LOGO]
PERSONAL AND CONFIDENTIAL
March 5, 1997
Board of Directors
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, California 91311
Gentlemen and Madame:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $1.00 per share (the "Shares"), of
Great Western Financial Corporation (the "Company") of the exchange ratio of 0.9
shares of Common Stock, no par value, of Washington Mutual, Inc. ("Washington
Mutual") to be received for each Share (the "Exchange Ratio") pursuant to the
merger (the "Merger") contemplated by the Agreement and Plan of Merger dated as
of March 5, 1997 by and among Washington Mutual, New American Capital, Inc. and
the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as managing underwriter of
its $300 million issue of Capital Securities in January 1997, and having acted
as its financial advisor in connection with, and participated in certain of the
negotiations leading to, the Agreement. We also have provided certain investment
banking services to Washington Mutual from time to time and may provide
investment banking services to Washington Mutual in the future. In addition,
Goldman, Sachs & Co. is a full service securities firm and in the course of its
trading activities it may from time to time effect transactions, for its own
account or the account of customers, and hold positions in securities or options
on securities of the Company and Washington Mutual.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five years ended December 31, 1995; Annual Reports to
Stockholders and Annual Reports on Form 10-K of Washington Mutual for the two
years ended December 31, 1995; Annual Reports to Stockholders and Annual Reports
to the FDIC on Form F-2 of Washington Mutual Savings Bank, predecessor to
Washington Mutual, for the three years ended December 31, 1993; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company and
Washington Mutual; certain other communications from the Company and Washington
Mutual to their respective stockholders; and certain internal financial analyses
and forecasts for the Company and Washington Mutual prepared by their respective
managements, including analyses and forecasts of certain cost savings, operating
efficiencies, revenue effects and financial synergies (collectively, the
"Synergies"). We also have held discussions with members of the senior
managements of the Company and Washington Mutual regarding the past and current
business operations, financial condition and future prospects of their
respective companies and each senior managements' assessment of the future
prospects of the combined company. In addition, we have reviewed the reported
price and trading activity for the Shares and Washington Mutual Common Stock,
compared certain financial and stock market information for the Company and
Washington Mutual with similar information for certain other companies the
securities of which are publicly traded,
1
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reviewed the financial terms of certain recent business combinations in the
savings and loan industry specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial forecasts, including, without limitation, the Synergies and
projections regarding under-performing and non-performing assets and net
charge-offs have been reasonably prepared on a basis reflecting the best
currently available judgments and estimates of the Company and Washington Mutual
and that such forecasts will be realized in the amounts and at the times
contemplated thereby. We are not experts in the evaluation of loan and lease
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and have assumed, with your consent, that such allowances
for each of the Company and Washington Mutual are in the aggregate adequate to
cover all such losses. In addition, we have not reviewed individual credit files
nor have we made an independent evaluation or appraisal of the assets and
liabilities of the Company or Washington Mutual or any of their subsidiaries and
we have not been furnished with any such evaluation or appraisal. We also have
assumed, with your consent, that the Merger will be accounted for as a pooling
of interests under generally accepted accounting principles. Our advisory
services and the opinion expressed herein are provided for the information and
assistance of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated by the Agreement.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair to the holders of Shares.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ---------------------------------------------------------
GOLDMAN, SACHS & CO.
2
<PAGE> 1
EXHIBIT 7
[MERRILL LYNCH LOGO]
Investment Banking
Corporate and
Institutional
Client Group
World Financial Center
North Tower
New York, New York 10281-1325
212-449-1000
March 5, 1997
Board of Directors
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, CA 91311
Members of the Board:
We understand that it is proposed that Washington Mutual, Inc. ("Washington
Mutual") and Great Western Financial Corporation ("Great Western") are proposing
to enter into an Agreement and Plan of Merger (the "Agreement") pursuant to
which Great Western will be merged with and into Washington Mutual in a
transaction (the "Merger") in which each outstanding share of Great Western's
common stock, par value $1.00 per share (the "Great Western Shares"), will be
converted into the right to receive 0.90 shares (the "Exchange Ratio") of the
common stock, no par value, of Washington Mutual (the "Washington Mutual
Shares"), all as set forth more fully in the Agreement.
You have asked us whether, in our opinion, the proposed Exchange Ratio in
the Merger is fair to the shareholders of Great Western from a financial point
of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Great Western's Annual Reports on Form 10-K and related
audited financial information for the five fiscal years ended December 31,
1995, a draft of Great Western's Annual Report on Form 10-K for the period
ended December 31, 1996, and Great Western's Quarterly Reports on Form 10-Q
and the related unaudited financial information for the quarterly periods
ending March 31, 1996, June 30, 1996 and September 30, 1996;
(2) Reviewed Washington Mutual's Annual Reports on Form 10-K and
related audited financial information for the two fiscal years ended
December 31, 1995, a draft of Washington Mutual's Annual Report on Form
10-K for the period ended December 31, 1996, Washington Mutual's Quarterly
Reports on Form 10-Q and the related unaudited financial information for
the quarterly periods ending March 31, 1996, June 30, 1996 and September
30, 1996, and Annual Reports to the FDIC on Form S-2 of Washington Mutual
Savings Bank, predecessor to Washington Mutual for the three years ended
December 31, 1993;
(3) Reviewed certain limited financial information, including
financial forecasts, relating to the respective business, earnings, assets,
liabilities and prospects of Great Western and Washington Mutual furnished
to us by senior management of Great Western and Washington Mutual;
(4) Conducted certain discussions with members of senior management of
Great Western and Washington Mutual concerning respective financial
condition, businesses, earnings, assets, liabilities, operations,
regulatory condition, financial forecasts, contingencies and prospects, of
Great Western and
1
<PAGE> 2
[MERRILL LYNCH LOGO]
Washington Mutual and their respective view as to the future financial
performance of Great Western, Washington Mutual and the combined entity, as
the case may be, following the Merger;
(5) Reviewed the historical market prices and trading activity for the
Great Western Shares and the Washington Mutual Shares and compared them
with that of certain publicly traded companies which we deemed to be
relevant;
(6) Compared the respective results of operations of Great Western and
Washington Mutual with those of certain publicly traded companies which we
deemed to be relevant;
(7) Compared the proposed financial terms of the Merger contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(8) Reviewed the amount and timing of the projected cost savings,
related expenses and revenue enhancements expected to result from the
Merger (the "Expected Synergies"), as presented by the senior management of
Washington Mutual;
(9) Considered, based upon information provided by the senior
management of Great Western and Washington Mutual, the pro forma impact of
the transaction on the earnings and book value per share, consolidated
capitalization and certain balance sheet and profitability ratios of
Washington Mutual;
(10) Reviewed a draft of the Agreement and Plan of Merger and related
agreements; and
(11) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed appropriate.
In preparing our opinion, with your consent, we have assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to us by Great Western and Washington Mutual, including that
contemplated in the numbered items above, and we have not assumed responsibility
for independently verifying such information or undertaken an independent
evaluation or appraisal of the assets or liabilities, contingent or otherwise,
of Great Western or Washington Mutual or any of their subsidiaries, nor have we
been furnished any such evaluation or appraisal. We are not experts in the
evaluation of allowances for loan losses and, with your consent, we have not
made an independent evaluation of the adequacy of the allowance for loan losses
of Great Western or Washington Mutual, nor have we reviewed any individual
credit files relating to Washington Mutual or Great Western and, with your
consent, we have assumed that the aggregate allowance for loan losses for each
of Washington Mutual and Great Western is adequate to cover such losses and will
be adequate on a pro forma basis for the combined entity. In addition, we have
not conducted any physical inspection of the properties or facilities of Great
Western or Washington Mutual. With your consent, we have also assumed and relied
upon the senior management of Great Western and Washington Mutual as to the
reasonableness and achievability of the financial forecasts (and the assumptions
and bases therefor) provided to, and discussed with, us. In that regard, we have
assumed and relied with your consent that such forecasts, including without
limitation, financial forecasts, evaluations of contingencies. Expected
Synergies and projections regarding underperforming and non-performing assets,
net charge-offs, adequacy of reserves, and future economic conditions reflect
the best currently available estimates, allocations and judgments of the senior
management of Great Western and Washington Mutual as to the future financial
performance of Great Western, Washington Mutual or the combined entity, as the
case may be. Our opinion is predicated on the Merger receiving the tax and
accounting treatment contemplated in the Agreement. Our opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
Our opinion has been rendered without regard to the necessity for, or level
of, any restrictions, obligations, undertakings or divestitures which may be
imposed or required in the course of obtaining regulatory approval for the
Merger.
We have been retained by the Board of Directors of Great Western as an
independent contractor to act as financial advisor to Great Western with respect
to the Merger Proposal and will receive a fee for our services.
2
<PAGE> 3
[MERRILL LYNCH LOGO]
We have, in the past, provided financial advisory and financing services to
Great Western and Washington Mutual and received customary fees for the
rendering of such services, including acting as lead underwriter for a 14.6
million share secondary public offering of Washington Mutual common stock in
January 1997. In addition, in the ordinary course of our securities business, we
may actively trade debt and/or equity securities of Great Western and Washington
Mutual and their respective affiliates for our own account and the accounts of
our customers, and we therefore may from time to time hold a long or short
position in such securities. In addition, certain affiliates of Merrill Lynch &
Co. act as investment advisors to publicly held mutual funds which owned, as of
March 4, 1997, approximately 5.1 million shares of Great Western's Common Stock
and approximately 0.5 million shares of Washington Mutual's Common Stock.
Our opinion is directed to the Board of Directors of Great Western and does
not constitute a recommendation to any shareholder of Great Western as to how
such shareholder should vote at any shareholder meeting of Great Western held in
connection with the Merger Proposal. This opinion is directed only to the
proposed Exchange Ratio and is for the confidential use of the Board of
Directors of Great Western and may not be reproduced, summarized, described or
referred to or given to any other person without our consent.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Exchange Ratio in the Merger is fair to the shareholders of Great
Western from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
3
<PAGE> 1
EXHIBIT 8
Goldman, Sachs & Co. / 85 Broad Street / New York, New York 10004
Tel: 212-902-1000 / Fax: 212-357-4449
[GOLDMAN SACHS LOGO]
PERSONAL AND CONFIDENTIAL
March 25, 1997
Board of Directors
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, California 91311
Gentlemen and Madame
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $1.00 per share (the "Shares"), of
Great Western Financial Corporation (the "Company") of the exchange ratio of 0.9
shares of Common Stock, no par value, of Washington Mutual, Inc. ("Washington
Mutual") to be received for each Share (the "Exchange Ratio") pursuant to the
merger (the "Merger") contemplated by the Agreement and Plan of Merger dated as
of March 5, 1997 by and among Washington Mutual, New American Capital, Inc. and
the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as managing underwriter of
its $300 million issue of Capital Securities in January 1997, and having acted
as its financial advisor in connection with, and participated in certain of the
negotiations leading to, the Agreement. We also have provided certain investment
banking services to Washington Mutual from time to time and may provide
investment banking services to Washington Mutual in the future. In addition,
Goldman, Sachs & Co. is a full service securities firm and in the course of its
trading activities it may from time to time effect transactions, for its own
account or the account of customers, and hold positions in securities or options
on securities of the Company and Washington Mutual.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4 of Washington Mutual dated
March 13, 1997, including the Joint Proxy Statement/ Prospectus of Washington
Mutual and the Company; Annual Reports to Stockholders and Annual Reports on
Form 10-K of the Company for the five years ended December 31, 1996; Annual
Reports to Stockholders and Annual Reports on Form 10-K of Washington Mutual for
the three years ended December 31, 1996; Annual Reports to Stockholders and
Annual Reports to the FDIC on Form F-2 of Washington Mutual Savings Bank,
predecessor to Washington Mutual, for the two years ended December 31, 1993;
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
the Company and Washington Mutual; certain other communications from the Company
and Washington Mutual to their respective stockholders; certain internal
financial analyses and forecasts for the Company and Washington Mutual prepared
by their respective managements, including analyses and forecasts of certain
cost savings, operating efficiencies, revenue effects and financial synergies
(collectively, the "Synergies"); the S-4 Registration Statement dated February
18, 1997 as amended March 18, 1997 of H.F. Ahmanson & Company ("Ahmanson"); and
certain press releases and filings with the Securities and Exchange Commission
by the Company, Washington Mutual and Ahmanson in connection with the Merger,
the Ahmanson proposal and related matters. We also have held discussions with
members of the senior managements of the Company and Washington Mutual regarding
the past and current business operations, financial condition and future
prospects of their respective companies and each senior management's assessment
of the future prospects of the combined company. In addition, we
1
<PAGE> 2
have reviewed the reported price and trading activity for the Shares and
Washington Mutual Common Stock, compared certain financial and stock market
information for the Company and Washington Mutual with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the savings and
loan industry specifically and in other industries generally and performed such
other studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial forecasts, including, without limitation, the Synergies and
projections regarding under performing and non performing assets and net
charge-offs have been reasonably prepared on a basis reflecting the best
currently available judgments and estimates of the Company and Washington Mutual
and that such forecasts will be realized in the amounts and at the times
contemplated thereby. We are not experts in the evaluation of loan and lease
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and have assumed, with your consent, that such allowances
for each of the Company and Washington Mutual are in the aggregate adequate to
cover all such losses. In addition, we have not reviewed individual credit files
nor have we made an independent evaluation or appraisal of the assets and
liabilities of the Company or Washington Mutual or any of their subsidiaries and
we have not been furnished with any such evaluation or appraisal. We also have
assumed, with your consent, that the Merger will be accounted for as a pooling
of interests under generally accepted accounting principles. Our advisory
services and the opinion expressed herein are provided for the information and
assistance of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated by the Agreement and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote at the stockholders' meeting to be held in connection
with the Merger.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair to the holders of Shares.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ---------------------------------------------------------
GOLDMAN, SACHS & CO.
2
<PAGE> 1
EXHIBIT 9
[MERRILL LYNCH LOGO]
Investment Banking
Corporate and
Institutional
Client Group
World Financial Center
North Tower
New York, New York
10281-1325
212 449 1000
March 25, 1997
Board of Directors
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, CA 91311
Members of the Board:
Washington Mutual, Inc. ("Washington Mutual") and Great Western Financial
Corporation ("Great Western") have entered into an Agreement and Plan of Merger,
dated March 5, 1997 (the "Agreement"), pursuant to which Great Western will be
merged with and into Washington Mutual in a transaction (the "Merger") in which
each outstanding share of Great Western's common stock, par value $1.00 per
share (the "Great Western Shares"), will be converted into the right to receive
0.90 shares (the "Exchange Ratio") of the common stock, no par value, of
Washington Mutual (the "Washington Mutual Shares"), all as set forth more fully
in the Agreement.
You have asked us to confirm, as of the date hereof, whether, in our
opinion, the proposed Exchange Ratio in the Merger is fair to the shareholders
of Great Western from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Great Western's Annual Reports on Form 10-K and related
audited financial information for the five fiscal years ended December 31,
1996;
(2) Reviewed Washington Mutual's Annual Reports on Form 10-K, and
related audited financial information for the three fiscal years ended
December 31, 1996 and Annual Reports to the FDIC on Form F-2 of Washington
Mutual Savings Bank, predecessor to Washington Mutual for the two years
ended December 31, 1993;
(3) Reviewed the Washington Mutual Registration Statement on Form S-4
dated March 13, 1997;
(4) Reviewed certain financial information, including financial
forecasts, relating to the respective business, earnings, assets,
liabilities and prospects of Great Western and Washington Mutual furnished
to us by senior management of Great Western and Washington Mutual;
(5) Conducted certain discussions with members of senior management of
Great Western and Washington Mutual concerning the respective financial
condition, businesses, earnings, assets, liabilities, operations,
regulatory condition, financial forecasts, contingencies and prospects, of
Great Western and Washington Mutual and their respective view as to the
future financial performance of Great Western, Washington Mutual and the
combined entity, as the case may be, following the Merger;
1
<PAGE> 2
[MERRILL LYNCH LOGO]
(6) Reviewed the historical market prices and trading activity for the
Great Western Shares and the Washington Mutual Shares and compared them
with that of certain publicly traded companies which we deemed to be
relevant;
(7) Compared the respective results of operations of Great Western and
Washington Mutual with those of certain publicly traded companies which we
deemed to be relevant;
(8) Compared the proposed financial terms of the Merger as set forth
in the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(9) Reviewed the amount and timing of the projected cost savings,
related expenses and revenue enhancements expected to result from the
Merger (the "Expected Synergies"), as presented by the senior management of
Washington Mutual;
(10) Considered, based upon information provided by the senior
management of Great Western and Washington Mutual, the pro forma impact of
the transaction on the earnings and book value per share, consolidated
capitalization and certain balance sheet and profitability ratios of
Washington Mutual;
(11) Reviewed the Agreement and Plan of Merger and related agreements;
(12) Reviewed the H.F. Ahmanson & Company ("Ahmanson") proposal to
merge with Great Western pursuant to which each share of Great Western
would be exchanged for between 1.10 and 1.20 shares of Ahmanson common
stock, as set forth more fully in Ahmanson's Registration Statement on Form
S-4 dated February 18, 1997 and Amendment No. 1 thereto dated March 18,
1997;
(13) Reviewed certain press releases and filings with the SEC by Great
Western, Washington Mutual and Ahmanson in connection with the Merger and
the Ahmanson merger proposal and related matters; and
(14) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed appropriate.
In preparing our opinion, with your consent we have assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to us by Great Western and Washington Mutual, including that
contemplated in the numbered items above, and we have not assumed responsibility
for independently verifying such information or undertaken an independent
evaluation or appraisal of the assets or liabilities, contingent or otherwise,
of Great Western or Washington Mutual or any of their subsidiaries, nor have we
been furnished any such evaluation or appraisal. We are not experts in the
evaluation of allowances for loan losses and, with your consent, we have not
made an independent evaluation of the adequacy of the allowance for loan losses
of Great Western or Washington Mutual, nor have we reviewed any individual
credit files relating to Washington Mutual or Great Western and, with your
consent, we have assumed that the aggregate allowance for loan losses for each
of Washington Mutual and Great Western is adequate to cover such losses and will
be adequate on a pro forma basis for the combined entity. In addition, we have
not conducted any physical inspection of the properties or facilities of Great
Western or Washington Mutual. With your consent, we have also assumed and relied
upon the senior management of Great Western and Washington Mutual as to the
reasonableness and achievability of the financial forecasts (and the assumptions
and bases therefor) provided to, and discussed with, us. In that regard, we have
assumed and relied with your consent that such forecasts, including without
limitation, financial forecasts, evaluations of contingencies, Expected
Synergies and projections regarding underperforming and nonperforming assets,
net charge-offs, adequacy of reserves and future economic conditions reflect the
best currently available estimates, allocations and judgments of the senior
management of Great Western and Washington Mutual as to the future financial
performance of Great Western, Washington Mutual or the combined entity, as the
case may be. Our opinion is predicated on the Merger receiving the tax and
accounting treatment contemplated in the Agreement. Our
2
<PAGE> 3
[MERRILL LYNCH LOGO]
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
Our opinion has been rendered without regard to the necessity for, or level
of, any restrictions, obligations, undertakings or divestitures which may be
imposed or required in the course of obtaining regulatory approval for the
Merger.
We have been retained by the Board of Directors of Great Western as an
independent contractor to act as financial advisor to Great Western with respect
to the Merger Proposal and will receive a fee for our services. We have, in the
past, provided financial advisory and financing services to Great Western and
Washington Mutual and received customary fees for the rendering of such
services, including acting as lead underwriter for a 14.6 million share
secondary public offering of Washington Mutual common stock in January 1997. In
addition, in the ordinary course of our securities business, we may actively
trade debt and/or equity securities of Great Western and Washington Mutual and
their respective affiliates for our own account and the accounts of our
customers, and we therefore may from time to time hold a long or short position
in such securities. In addition, certain affiliates of Merrill Lynch & Co. act
as investment advisors to publicly held mutual funds which owned, as of March
21, 1997, approximately 4.93 million shares of Great Western's Common Stock and
approximately 0.08 million shares of Washington Mutual's Common Stock.
Our opinion is directed to the Board of Directors of Great Western and does
not constitute a recommendation to any shareholder of Great Western as to how
such shareholder should vote at any shareholder meeting of Great Western held in
connection with the Merger Proposal. This opinion is directed only to the
proposed Exchange Ratio and is for the confidential use of the Board of
Directors of Great Western and may not be reproduced, summarized, described or
referred to or given to any other person without our consent.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Exchange Ratio in the Merger is fair to the shareholders of Great
Western from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
3
<PAGE> 1
EXHIBIT 10
Goldman, Sachs & Co. / 85 Broad Street / New York, New York 10004
Tel: 212-902-1000 / Fax: 212-357-4449
[GOLDMAN SACHS LOGO]
PERSONAL AND CONFIDENTIAL
May 19, 1997
Board of Directors
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, California 91311
Gentlemen and Madame:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $1.00 per share (the "Shares"), of
Great Western Financial Corporation (the "Company") of the exchange ratio of 0.9
shares of Common Stock, no par value, of Washington Mutual, Inc. ("Washington
Mutual") to be received for each Share (the "Exchange Ratio") pursuant to the
merger (the "Merger") contemplated by the Agreement and Plan of Merger dated as
of March 5, 1997 by and among Washington Mutual, New American Capital, Inc. and
the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as managing underwriter of
its $300 million issue of Capital Securities in January 1997, and having acted
as its financial advisor in connection with, and participated in certain of the
negotiations leading to, the Agreement. We also have provided certain investment
banking services to Washington Mutual from time to time and may provide
investment banking services to Washington Mutual in the future. In addition,
Goldman, Sachs & Co. is a full service securities firm and in the course of its
trading activities it may from time to time effect transactions, for its own
account or the account of customers, and hold positions in securities or options
on securities of the Company and Washington Mutual.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4 of Washington Mutual dated
March 13, 1997 as amended through May 13, 1997, including the Joint Proxy
Statement/Prospectus of Washington Mutual and the Company; Annual Reports to
Stockholders and Annual Reports on Form 10-K of the Company for the five years
ended December 31, 1996; Annual Reports to Stockholders and Annual Reports on
Form 10-K of Washington Mutual for the three years ended December 31, 1996;
Annual Reports to Stockholders and Annual Reports to the FDIC on Form F-2 of
Washington Mutual Savings Bank, predecessor to Washington Mutual, for the two
years ended December 31, 1993; certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of the Company and Washington Mutual; certain
other communications from the Company and Washington Mutual to their respective
stockholders; certain internal financial analyses and forecasts for the Company
and Washington Mutual prepared by their respective managements, including
analyses and forecasts of certain cost savings,
1
<PAGE> 2
Great Western Financial Corporation
May 19, 1997
Page Two
operating efficiencies, revenue effects and financial synergies (collectively,
the "Synergies"); the S-4 Registration Statement dated February 18, 1997, as
amended through May 13, 1997, of H.F. Ahmanson & Company ("Ahmanson"), including
the merger proposal and the subsequently proposed exchange offer to the
Company's stockholders referred to therein (the "Ahmanson Exchange Offer
Proposal"); and certain press releases and filings with the Securities and
Exchange Commission by the Company, Washington Mutual and Ahmanson in connection
with the Merger, the Ahmanson proposals and related matters. We also have held
discussions with members of the senior managements of the Company and Washington
Mutual regarding the past and current business operations, financial condition
and future prospects of their respective companies and each senior management's
assessment of the future prospects of the combined company. In addition, we have
reviewed the reported price and trading activity for the Shares and Washington
Mutual Common Stock, compared certain financial and stock market information for
the Company and Washington Mutual with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the savings and loan industry
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial forecasts, including, without limitation, the Synergies and
projections regarding under-performing and non-performing assets and net
charge-offs have been reasonably prepared on a basis reflecting the best
currently available judgments and estimates of the Company and Washington Mutual
and that such forecasts will be realized in the amounts and at the times
contemplated thereby. We are not experts in the evaluation of loan and lease
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and have assumed, with your consent, that such allowances
for each of the Company and Washington Mutual are in the aggregate adequate to
cover all such losses. In addition, we have not reviewed individual credit files
nor have we made an independent evaluation or appraisal of the assets and
liabilities of the Company or Washington Mutual or any of their subsidiaries and
we have not been furnished with any such evaluation or appraisal. We also have
assumed, with your consent, that the Merger will be accounted for as a pooling
of interests under generally accepted accounting principles. Our advisory
services and the opinion expressed herein are provided for the information and
assistance of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated by the Agreement and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote at the stockholders' meeting to be held in connection
with the Merger, nor does this opinion constitute a recommendation as to how
stockholders should respond to the Ahmanson Exchange Offer Proposal.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair to the holders of Shares.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ---------------------------------------------------------
GOLDMAN, SACHS & CO.
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EXHIBIT 11
[MERRILL LYNCH LOGO] Investment Banking Group
Merrill Lynch & Co., Inc.
World Financial Center
North Tower
New York, New York 10281-1325
212 449 1000
May 19, 1997
Board of Directors
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, CA 91311
Members of the Board:
Washington Mutual, Inc. ("Washington Mutual") and Great Western Financial
Corporation ("Great Western") have entered into an Agreement and Plan of Merger,
dated March 5, 1997 (the "Agreement"), pursuant to which Great Western will be
merged with and into Washington Mutual in a transaction (the "Merger") in which
each outstanding share of Great Western's common stock, par value $1.00 per
share (the "Great Western Shares"), will be converted into the right to receive
0.90 shares (the "Exchange Ratio") of the common stock, no par value, of
Washington Mutual (the "Washington Mutual Shares"), all as set forth more fully
in the Agreement.
You have asked us to confirm, as of the date hereof, whether, in our
opinion, the proposed Exchange Ratio in the Merger is fair to the shareholders
of Great Western from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
1) Reviewed Great Western's Annual Reports on Form 10-K and related
audited financial information for the five fiscal years ended December
31, 1996, and Great Western's Quarterly Report on Form 10-Q and the
related unaudited financial information for the quarterly period ended
March 31, 1997;
2) Reviewed Washington Mutual's Annual Reports on Form 10-K, and related
audited financial information for the three fiscal years ended December
31, 1996 and Annual Report to the FDIC on Form F-2 of Washington Mutual
Savings Bank, predecessor to Washington Mutual for the two years ended
December 31, 1993, and Washington Mutual's Quarterly Report on Form
10-Q and the related unaudited financial information for the quarterly
period ended March 31, 1997;
3) Reviewed the Washington Mutual Registration Statement on Form S-4 dated
March 13, 1997, as amended through May 13, 1997;
4) Reviewed certain financial information, including financial forecasts,
relating to the respective business, earnings, assets, liabilities and
prospects of Great Western and Washington Mutual furnished to us by
senior management of Great Western and Washington Mutual;
5) Conducted certain discussions with members of senior management of
Great Western and Washington Mutual concerning the respective financial
condition, businesses, earnings, assets, liabilities, operations,
regulatory condition, financial forecasts, contingencies and prospects,
of Great Western and Washington Mutual and their respective view as to
the future financial performance of Great Western, Washington Mutual
and the combined entity, as the case may be, following the Merger;
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6) Reviewed the historical market prices and trading activity for the
Great Western Shares and the Washington Mutual Shares and compared them
with that of certain publicly traded companies which we deemed to be
relevant;
7) Compared the respective results of operations of Great Western and
Washington Mutual with those of certain publicly traded companies which
we deemed to be relevant;
8) Compared the proposed financial terms of the Merger as set forth in the
Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
9) Reviewed the amount and timing of the projected cost savings, related
expenses and revenue enhancements expected to result from the Merger
(the "Expected Synergies"), as presented by the senior management of
Washington Mutual;
10) Considered, based upon information provided by the senior management of
Great Western and Washington Mutual, the pro forma impact of the
transaction on the earnings and book value per share, consolidated
capitalization and certain balance sheet and profitability ratios of
Washington Mutual;
11) Reviewed the Agreement and related agreements;
12) Reviewed the H.F. Ahmanson & Company ("Ahmanson") merger proposal and
the subsequently proposed exchange offer (the "Ahmanson Exchange Offer
Proposal") pursuant to which, in each case, each outstanding share of
Great Western would be exchanged for between 1.10 and 1.20 shares of
Ahmanson common stock, as set forth more fully in Ahmanson's
Registration Statement on Form S-4 dated February 18, 1997, as amended
through May 13, 1997;
13) Reviewed certain press releases and filings with the SEC by Great
Western, Washington Mutual and Ahmanson in connection with the Merger
and the Ahmanson exchange ratio and related matters; and
14) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed appropriate.
In preparing our opinion, with your consent we have assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to us by Great Western and Washington Mutual, including that
contemplated in the numbered items above, and we have not assumed responsibility
for independently verifying such information or undertaken an independent
evaluation or appraisal of the assets or liabilities, contingent or otherwise,
of Great Western or Washington Mutual or any of their subsidiaries, nor have we
been furnished any such evaluation or appraisal. We are not experts in the
evaluation of allowances for loan losses and, with your consent, we have not
made an independent evaluation of the adequacy of the allowance for loan losses
of Great Western or Washington Mutual, nor have we reviewed any individual
credit files relating to Washington Mutual or Great Western and, with your
consent, we have assumed that the aggregate allowance for loan losses for each
of Washington Mutual and Great Western is adequate to cover such losses and will
be adequate on a pro forma basis for the combined entity. In addition, we have
not conducted any physical inspection of the properties or facilities of Great
Western or Washington Mutual. With your consent, we have also assumed and relied
upon the senior management of Great Western and Washington Mutual as to the
reasonableness and achievability of the financial forecasts (and the assumptions
and bases therefor) provided to, and discussed with, us. In that regard, we have
assumed and relied with your consent that such forecasts, including without
limitation, financial forecasts, evaluations of contingencies, Expected
Synergies and projections regarding underperforming and non-performing assets,
net charge-offs, adequacy of reserves, and future economic conditions reflect
the best currently available estimates, allocations and judgments of the senior
management of Great Western and Washington Mutual as to the future financial
performance of Great Western, Washington Mutual or the combined entity, as the
case may be. Our opinion is predicated on the Merger receiving the tax and
accounting treatment contemplated in the Agreement. Our
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[MERRILL LYNCH LOGO]
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
Our opinion has been rendered without regard to the necessity for, or level
of, any restrictions, obligations, undertakings or divestitures which may be
imposed or required in the course of obtaining regulatory approval for the
Merger.
We have been retained by the Board of Directors of Great Western as an
independent contractor to act as financial advisor to Great Western with respect
to the Merger and will receive a fee for our services. We have, in the past,
provided financial advisory and financing services to Great Western and
Washington Mutual and received customary fees for the rendering of such
services, including acting as lead underwriter for a 14.6 million share
secondary public offering of Washington Mutual common stock in January 1997. In
addition, in the ordinary course of our securities business, we may actively
trade debt and/or equity securities of Great Western and Washington Mutual and
their respective affiliates for our own account and the accounts of our
customers, and we therefore may from time to time hold a long or short position
in such securities. In addition, certain affiliates of Merrill Lynch & Co. act
as investment advisors to publicly held mutual funds which owned, as of May 16,
1997, approximately 4.93 million shares of Great Western's common stock and
approximately 0.06 million shares of Washington Mutual's common stock.
Our opinion is directed to the Board of Directors of Great Western and does
not constitute a recommendation to any shareholder of Great Western as to how
such shareholder should vote at any shareholder meeting of Great Western held in
connection with the Merger, nor does our opinion constitute a recommendation as
to how such shareholders should respond to the Ahmanson Exchange Offer Proposal.
Our opinion is directed only to the proposed Exchange Ratio and is for the
confidential use of the Board of Directors of Great Western and may not be
reproduced, summarized, described or referred to or given to any other person
without our consent.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Exchange Ratio in the Merger is fair to the shareholders of Great
Western from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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EXHIBIT 12
SUMMARY
The information below is qualified in its entirety by the more detailed
information appearing elsewhere in this Joint Proxy Statement/Prospectus,
including the documents incorporated by reference in this Joint Proxy
Statement/Prospectus. As used in this Joint Proxy Statement/Prospectus, the term
"Washington Mutual" refers to Washington Mutual and, unless the context
otherwise requires, its subsidiaries, and the term "Great Western" refers to
Great Western and, unless the context otherwise requires, its subsidiaries. The
term "Combined Company" is sometimes used herein to refer to Washington Mutual
following consummation of the Merger. All references to the Great Western Common
Stock in this Joint Proxy Statement/Prospectus include the associated Great
Western Rights issued pursuant to the Great Western Rights Plan (as defined
herein) and all references to the Washington Mutual Common Stock include the
associated Washington Mutual Rights issued pursuant to the Washington Mutual
Rights Plan (as defined herein).
Forward-looking statements are contained in this Joint Proxy
Statement/Prospectus and in documents incorporated by reference herein regarding
Washington Mutual, Great Western and the Combined Company. Actual results may
vary materially from the forward-looking statements contained in such documents
for reasons which include the factors set forth herein under "Risk Factors" and
in Washington Mutual's Current Report on Form 8-K dated March 6, 1997, which is
incorporated by reference herein. See "Incorporation of Certain Documents by
Reference."
THE SPECIAL MEETINGS
THE WASHINGTON MUTUAL MEETING
Time, Date and Place. The Washington Mutual Meeting will be held at 2:00
p.m., local time, on Friday, June 13, 1997, at Washington State Convention and
Trade Center, 800 Convention Place, Seattle, Washington. See "The Special
Meetings -- General."
Matters to be Considered. Shareholders of Washington Mutual will be asked
to consider and vote upon proposals to (i) approve the issuance of shares of
Washington Mutual Common Stock to Great Western Stockholders pursuant to the
Merger Agreement (the "Share Issuance/Merger Proposal"), and (ii) to amend the
Washington Mutual Articles to increase the number of authorized shares of
Washington Mutual Common Stock from 350,000,000 shares to 800,000,000 shares
(the "Articles Amendment Proposal"). The approval of the Articles Amendment
Proposal is not a condition to the consummation of the Washington Mutual/Great
Western Merger. See "The Special Meetings -- Matters to be Considered at the
Special Meetings."
Record Date; Shares Entitled to Vote; Quorum. The Board of Directors of
Washington Mutual (the "Washington Mutual Board") has fixed the close of
business on May 9, 1997 as the record date (the "Washington Mutual Record Date")
for the determination of the holders of Washington Mutual Common Stock and
holders of Washington Mutual Preferred Stock (as defined below) entitled to
receive notice of and to vote at the Washington Mutual Meeting.
As of the Washington Mutual Record Date, there were 126,291,687 shares of
Washington Mutual Common Stock entitled to vote at the Washington Mutual
Meeting, 2,252,500 shares of 9.12% Noncumulative Perpetual Preferred Stock,
Series C ("Series C Preferred") entitled to vote at the Washington Mutual
Meeting and 1,970,000 shares of 7.60% Noncumulative Perpetual Preferred Stock,
Series E entitled to vote at the Washington Mutual Meeting ("Series E Preferred"
and together with the Series C Preferred, the "Washington Mutual Preferred
Stock"). Each share of Washington Mutual Common Stock is entitled to one vote on
each of the matters properly presented at the Washington Mutual Meeting. Each
share of Washington Mutual Preferred Stock is entitled to one vote only on the
Articles Amendment Proposal. For the vote on the Share Issuance/Merger Proposal,
the presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Washington Mutual Common Stock will constitute a quorum.
For the vote on the Articles Amendment Proposal, the presence, in person or by
proxy, of the holders of a majority of (i) the outstanding shares of Washington
Mutual Common Stock (for the separate vote of holders of Washington
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Mutual Common Stock as a class) and (ii) the aggregate of the outstanding shares
of Washington Mutual Common Stock and Washington Mutual Preferred Stock (for the
vote of holders of Washington Mutual Common Stock and Washington Mutual
Preferred Stock as a single class) will constitute a quorum, respectively. See
"The Special Meetings -- Record Date and Voting" and " -- Quorum; Votes
Required."
Votes Required. Under NASDAQ rules, the Share Issuance/Merger Proposal
will require the affirmative vote of a majority of the shares of Washington
Mutual Common Stock voting on such proposal. Approval of the Articles Amendment
Proposal will require the affirmative votes of the holders of (i) two-thirds of
the shares of Washington Mutual Common Stock and Washington Mutual Preferred
Stock entitled to vote at the Washington Mutual Meeting voting together as a
single class and (ii) two-thirds of the shares of Washington Mutual Common Stock
entitled to vote at the Washington Mutual Meeting voting as a single class.
Accordingly, assuming a quorum is present, a failure to submit a proxy (or to
vote in person at the Washington Mutual Meeting), an abstention by a Washington
Mutual shareholder or a broker non-vote, which is an indication by a broker that
it does not have discretionary authority to vote on a particular matter, will
have no effect on the Share Issuance/Merger Proposal, but will have the same
effect as a "NO" vote with respect to the vote on the Articles Amendment
Proposal. For shares of Washington Mutual Common Stock or Washington Mutual
Preferred Stock held in street name by a broker, the failure of a Washington
Mutual shareholder to give such broker voting instructions with regard to any
proposal on which such shareholder is entitled to vote will result in a broker
non-vote and will have the effects described in the preceding sentence. See "The
Special Meetings -- Record Date and Voting" and " -- Quorum; Votes Required."
THE WASHINGTON MUTUAL BOARD HAS DETERMINED, BY A UNANIMOUS VOTE OF ALL
DIRECTORS PRESENT (WITH THREE DIRECTORS ABSENT), THAT THE TERMS OF THE
WASHINGTON MUTUAL/GREAT WESTERN MERGER ARE FAIR AND IN THE BEST INTERESTS OF
WASHINGTON MUTUAL AND ITS SHAREHOLDERS AND, ACCORDINGLY, RECOMMENDS THAT YOU
VOTE "FOR" THE SHARE ISSUANCE/MERGER PROPOSAL. IN ADDITION, THE WASHINGTON
MUTUAL BOARD HAS APPROVED, BY A UNANIMOUS VOTE OF ALL DIRECTORS PRESENT (WITH
THREE DIRECTORS ABSENT), THE ARTICLES AMENDMENT PROPOSAL AND, ACCORDINGLY,
RECOMMENDS THAT YOU VOTE "FOR" THE ARTICLES AMENDMENT PROPOSAL. EACH OF THE
DIRECTORS NOT PRESENT AT THE MEETING HAS SUBSEQUENTLY EXPRESSED THEIR APPROVAL
OF EACH OF THE PROPOSALS.
For a discussion of the factors considered by the Washington Mutual Board
in reaching its decision to approve and adopt the Merger Agreement and approve
the Share Issuance/Merger Proposal, see "The Washington Mutual/Great Western
Merger -- Background of the Washington Mutual/Great Western Merger" and
"-- Reasons for the Washington Mutual/Great Western Merger; Recommendations of
the Boards of Directors."
Security Ownership of Management and Others. As of the Washington Mutual
Record Date, directors and executive officers of Washington Mutual and their
affiliates (excluding any shares owned by or through Acadia Partners, L.P. and
affiliates thereof) beneficially owned and were entitled to vote 3,636,798
shares of Washington Mutual Common Stock and 500 shares of Washington Mutual
Preferred Stock, which represented approximately 2.88% of the shares of
Washington Mutual Common Stock and less than 1% of Washington Mutual Preferred
Stock, respectively, outstanding on such date. In addition, as of the Washington
Mutual Record Date, Mr. Robert M. Bass and Acadia Partners, L.P. beneficially
owned and were entitled to vote 11,546,451 shares and 6,215,004 shares,
respectively, of Washington Mutual Common Stock, which represented approximately
9.14% and 4.92%, respectively, of the shares of Washington Mutual Common Stock
outstanding on such date. Mr. Bass, Acadia Partners, L.P. and each Washington
Mutual director and executive officer has indicated a present intention to vote,
or cause to be voted, the Washington Mutual Common Stock and Washington Mutual
Preferred Stock so owned for approval of the Share Issuance/Merger Proposal and
the Articles Amendment Proposal. See "The Special Meetings -- Quorum; Votes
Required."
THE GREAT WESTERN MEETING
Time, Date and Place. The Great Western Meeting will be held at 10:00
a.m., local time, on Friday, June 13, 1997, at Great Western's Employee Center
at 19809 Prairie Street, Chatsworth, California 91311. See "The Special
Meetings -- General."
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Matters to be Considered. Great Western Stockholders will be asked to
consider and vote upon a proposal to approve the Washington Mutual/Great Western
Merger Agreement. See "The Special Meetings -- Matters to be Considered at the
Special Meetings."
Record Date; Shares Entitled to Vote; Quorum. The Board of Directors of
Great Western (the "Great Western Board") has fixed the close of business on May
9, 1997 as the record date (the "Great Western Record Date") for the
determination of the Great Western Stockholders entitled to receive notice of
and to vote at the Great Western Meeting. Holders of record of Great Western
Preferred Stock as of the Great Western Record Date are entitled to notice of
but are not entitled to vote at the Great Western Meeting.
As of the Great Western Record Date, there were 137,922,037 issued and
outstanding shares of Great Western Common Stock. Each share of Great Western
Common Stock is entitled to one vote on each of the matters properly presented
at the Great Western Meeting. The presence, in person or by proxy, of the
holders of a majority of the issued and outstanding shares of Great Western
Common Stock will constitute a quorum. See "The Special Meetings -- Record Date
and Voting" and " -- Quorum; Votes Required."
Votes Required. Pursuant to Delaware law, the affirmative vote of the
holders of a majority of the shares of Great Western Common Stock entitled to
vote at the Great Western Meeting is required to approve the Washington
Mutual/Great Western Merger Proposal. Accordingly, a failure to submit a proxy
(or to vote in person at the Great Western Meeting), an abstention by a Great
Western Stockholder or a broker non-vote, which is an indication by a broker
that it does not have discretionary authority to vote on a particular matter,
will have the same effect as a "NO" vote with respect to the vote on the
Washington Mutual/Great Western Merger Proposal. For shares of Great Western
Common Stock held in street name by a broker, the failure of a Great Western
Stockholder to give such broker voting instructions with regard to the
Washington Mutual/ Great Western Merger Proposal will result in a broker
non-vote and will have the same effect as a "NO" vote with respect to such
proposal. Holders of Great Western Preferred Stock are not entitled to and are
not being asked to vote on approval and adoption of the Washington Mutual/Great
Western Merger Proposal or any other matters that may be considered at the Great
Western Meeting. See "The Special Meetings -- Record Date and Voting" and
" -- Quorum; Votes Required."
THE GREAT WESTERN BOARD HAS UNANIMOUSLY DETERMINED THAT THE TERMS OF THE
WASHINGTON MUTUAL/ GREAT WESTERN MERGER ARE FAIR AND IN THE BEST INTERESTS OF
GREAT WESTERN AND ITS STOCKHOLDERS AND, ACCORDINGLY, RECOMMENDS THAT YOU VOTE
"FOR" THE WASHINGTON MUTUAL/GREAT WESTERN MERGER.
Security Ownership of Management and Others. As of the Great Western
Record Date, directors and executive officers of Great Western and their
affiliates beneficially owned and were entitled to vote 617,897 shares of Great
Western Common Stock, which represented less than 1% of the shares of Great
Western Common Stock outstanding on such date. Each Great Western director and
executive officer has indicated his or her present intention to vote, or cause
to be voted, the Great Western Common Stock so owned by him or her for approval
of the Washington Mutual/Great Western Merger Proposal. As of the Great Western
Record Date, various subsidiaries of Great Western, as fiduciaries, custodians
or agents, did not have sole or shared voting power with respect to any shares
of Great Western Common Stock. See "The Special Meetings -- Quorum; Votes
Required."
Pending Litigation in the Court of Chancery of the State of Delaware. In
certain pending litigation in the Court of Chancery in the State of Delaware,
Ahmanson has requested the Court to require that the Great Western Meeting occur
no earlier than six weeks after certification of the results of Great Western's
1997 Annual Meeting of Stockholders. Great Western has scheduled both meetings
for June 13, 1997, and intends to vigorously oppose Ahmanson's requested relief.
See "Litigation."
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THE PARTIES TO THE WASHINGTON MUTUAL/GREAT WESTERN MERGER
Washington Mutual
Washington Mutual is a regional financial services company committed to
serving consumers and small to mid-sized businesses throughout the Western
United States. Through its subsidiaries, Washington Mutual engages in the
following activities:
- MORTGAGE LENDING AND CONSUMER BANKING ACTIVITIES. Through its principal
subsidiaries, Washington Mutual Bank ("WMB"), American Savings Bank, F.A.
("ASB"), and Washington Mutual Bank fsb ("WMBfsb"), at December 31, 1996,
Washington Mutual operated 413 consumer financial centers and 96 loan
centers offering a full complement of mortgage lending and consumer
banking products and services. In 1996, WMB was the leading originator of
first-lien, single-family residential loans in Washington and Oregon, and
ASB was the second largest such originator in California.
- COMMERCIAL BANKING ACTIVITIES. Through the commercial banking division
of WMB, at December 31, 1996, Washington Mutual operated 48 full-service
business branches offering a range of commercial banking products and
services to small and mid-sized businesses. WMB commenced its commercial
banking activities through the acquisition of Enterprise Bank of
Bellevue, Washington ("Enterprise") in 1995 and Western Bank of Coos Bay,
Oregon ("Western") in 1996.
- INSURANCE ACTIVITIES. Through WM Life Insurance Company ("WM Life") and
ASB Insurance Services Inc. ("ASB Insurance"), Washington Mutual
underwrites and sells annuities and sells a range of life insurance
contracts, and selected property and casualty insurance policies.
- SECURITIES ACTIVITIES. Through ASB Financial Services, Inc. ("ASB
Financial"), Murphey Favre, Inc. ("Murphey Favre") and Composite Research
& Management Co. ("Composite Research"), Washington Mutual offers full
service securities brokerage and acts as the investment advisor to and
the distributor of mutual funds.
Washington Mutual operates in Washington, California, Oregon, Utah, Idaho,
Montana, Arizona, Colorado and Nevada. At December 31, 1996, Washington Mutual
had consolidated assets of $44.6 billion, deposits of $24.1 billion and
stockholders' equity of $2.4 billion. Based on deposits, Washington Mutual was
at that date the second largest banking organization in Washington and the 28th
largest in the United States.
Washington Mutual has its principal executive offices at 1201 Third Avenue,
Seattle, Washington 98101, telephone number (206) 461-2000.
Great Western
Great Western is a savings and loan holding company organized in 1955 under
the laws of the state of Delaware. The principal assets of Great Western are the
capital stock of Great Western Bank, a Federal Savings Bank ("GW Bank"), and
Aristar, Inc. ("Aristar"). GW Bank is a federally chartered stock savings bank
which has 416 branches in California and Florida. Real estate lending operations
are conducted directly by GW Bank and by direct subsidiaries through more than
200 offices in 27 states with concentrations in California, Florida, Texas and
Washington. Aristar conducts consumer finance operations through 502 offices in
23 states, most of which operate principally under the names of Blazer Financial
Services or City Finance Company, provides direct installment loans and related
credit insurance services, and purchases retail installment contracts. Great
Western and its subsidiaries also engage in related service businesses,
including investment company advisory and administrative activities, insurance
operations and real estate development.
At December 31, 1996, Great Western had total assets of $42.9 billion,
deposits of $28.6 billion and stockholders' equity of $2.6 billion. Based on
deposits, Great Western was at that date the fourth largest banking organization
in California and the 24th largest in the United States.
Great Western has its principal executive offices at 9200 Oakdale Avenue,
Chatsworth, California 91311, telephone number (818) 775-3411.
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THE WASHINGTON MUTUAL/GREAT WESTERN MERGER
Exchange Ratio
At the Effective Time, (i) each outstanding share of Great Western Common
Stock will be converted into the right to receive 0.9 shares of Washington
Mutual Common Stock, with cash being paid in lieu of fractional shares, and (ii)
each outstanding share of Great Western Preferred Stock will be converted into
the right to receive one share of Series F Preferred Stock. The terms,
preferences, limitations, privileges and rights of the Series F Preferred Stock
will be substantially identical to those of the Great Western Preferred Stock.
On May 12, 1997, the closing sales price of Washington Mutual Common Stock on
NASDAQ was $52.69 per share. If the Washington Mutual/Great Western Merger had
occurred at such time, the Exchange Ratio would have resulted in an indicated
per share value for the Great Western Common Stock of $47.42. Because the
Exchange Ratio is fixed, a change in the market price of Washington Mutual
Common Stock before the Effective Time would affect the implied market value of
the consideration to be received by Great Western Stockholders in the Washington
Mutual/Great Western Merger. There can be no assurance as to the market price of
Washington Mutual Common Stock at any time before, at or after the Effective
Time. Stockholders are urged to obtain current market quotations. See "The
Washington Mutual/Great Western Merger -- Conversion of Great Western Capital
Stock."
At the Effective Time, each option to purchase shares of Great Western
Common Stock (each a "Great Western Common Stock Option") issued by Great
Western pursuant to any of its employee or director stock option programs (each
a "Great Western Common Stock Plan") that is outstanding and unexercised
immediately prior to the Effective Time will be converted automatically into an
option to purchase shares of Washington Mutual Common Stock (each a "Washington
Mutual Stock Option"). The number of shares of Washington Mutual Common Stock
subject to a Washington Mutual Stock Option will be equal to the product of the
number of shares of Great Western Common Stock underlying the Great Western
Common Stock Option multiplied by the Exchange Ratio and rounded down to the
nearest share, and the exercise price per share of Washington Mutual Common
Stock subject to a Washington Mutual Stock Option will be equal to the exercise
price per share of Great Western Common Stock underlying the Great Western
Common Stock Option divided by the Exchange Ratio and rounded up to the nearest
cent. See "The Washington Mutual/Great Western Merger -- Conversion of Great
Western Capital Stock."
Reasons for the Washington Mutual/Great Western Merger; Recommendations of the
Boards of Directors
The Boards of Directors of Washington Mutual and Great Western believe that
the Washington Mutual/Great Western Merger represents a unique opportunity to
create one of the premier consumer banking franchises on the West Coast. As a
result of the Washington Mutual/Great Western Merger, the Combined Company would
rank as the third largest banking organization in the western United States and
the twelfth largest in the United States, with over 1,500 retail and business
banking, consumer lending and mortgage lending offices located in 36 states and
serving an estimated 4.1 million households. The Combined Company would have a
strong deposit market share in Washington, Oregon, Utah and the key consumer
banking state of California, as well as a strong market presence in parts of
Florida. The Combined Company also would rank as one of the largest originators
and servicers of residential mortgage loans in the United States, giving it the
economies of scale and efficiencies to compete effectively in the rapidly
consolidating financial services industry.
In addition, management of Washington Mutual has identified potential cost
savings, estimated at $340 million annually (pre-tax) by 1999, and opportunities
for possible significant revenue enhancements from the Washington Mutual/Great
Western Merger. See "Management and Operations of Washington Mutual Following
the Washington Mutual/Great Western Merger -- Operations After the Washington
Mutual/Great Western Merger."
EACH OF THE WASHINGTON MUTUAL BOARD AND THE GREAT WESTERN BOARD BELIEVES
THAT THE TERMS OF THE WASHINGTON MUTUAL/GREAT WESTERN MERGER ARE FAIR TO, AND IN
THE BEST INTERESTS OF, THEIR RESPECTIVE SHAREHOLDERS. THE WASHINGTON MUTUAL
BOARD AND THE GREAT WESTERN BOARD HAVE EACH, BY UNANIMOUS VOTE OF ALL DIRECTORS
PRESENT, APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY
AND
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RECOMMEND THAT THEIR RESPECTIVE SHAREHOLDERS APPROVE AND ADOPT THE SHARE
ISSUANCE/MERGER PROPOSAL (IN THE CASE OF WASHINGTON MUTUAL SHAREHOLDERS) AND THE
WASHINGTON MUTUAL/GREAT WESTERN MERGER PROPOSAL (IN THE CASE OF GREAT WESTERN
STOCKHOLDERS).
IN ADDITION, THE WASHINGTON MUTUAL BOARD HAS, BY UNANIMOUS VOTE OF ALL
DIRECTORS PRESENT, APPROVED THE ARTICLES AMENDMENT PROPOSAL AND RECOMMENDS THAT
THE WASHINGTON MUTUAL SHAREHOLDERS AND THE HOLDERS OF WASHINGTON MUTUAL
PREFERRED STOCK VOTE TO APPROVE THE ARTICLES AMENDMENT PROPOSAL.
For a discussion of the factors considered by each of the Washington Mutual
Board and the Great Western Board in reaching its decision to approve and adopt
the Merger Agreement, see "The Washington Mutual/Great Western
Merger -- Background of the Washington Mutual/Great Western Merger" and
"-- Reasons for the Washington Mutual/Great Western Merger; Recommendations of
the Boards of Directors."
On February 18, 1997, H.F. Ahmanson & Company ("Ahmanson") publicly
announced its unsolicited proposal for a merger of Great Western and Ahmanson
pursuant to which each share of Great Western Common Stock would be converted
into 1.05 shares of Ahmanson common stock (the "Original Ahmanson Proposal"). On
March 17, 1997, Ahmanson announced a revised merger proposal pursuant to which
each share of Great Western Common Stock would be converted into not less than
1.10 nor more than 1.20 shares of Ahmanson common stock (as so revised, the
"Ahmanson Proposal"). The Great Western Board, after consulting with its legal
and financial advisors, has determined not to authorize negotiations or
discussions with Ahmanson concerning the Ahmanson Proposal. See "The Washington
Mutual/Great Western Merger -- Background of the Washington Mutual/Great Western
Merger." No presentations have been made by Ahmanson to the Great Western Board
concerning the Ahmanson Proposal. The Great Western Board has determined that
Washington Mutual represents a superior merger partner and its proposal
represents a superior value opportunity. Consequently, Great Western
Stockholders are not being asked to consider and vote upon the Ahmanson
Proposal. For a discussion of the factors considered by the Great Western Board
in connection with its consideration of the Ahmanson Proposal, see "The
Washington Mutual/Great Western Merger -- Reasons for the Washington
Mutual/Great Western Merger; Recommendations of the Boards of Directors." On May
12, 1997, Ahmanson publicly announced that it intended to commence an exchange
offer for all of the outstanding shares of Great Western Common Stock on the
same financial terms as the Ahmanson Proposal. The Great Western Board has not
yet reviewed the terms of Ahmanson's exchange offer as set forth in its May 13,
1997 filing with the Securities and Exchange Commission. Promptly after its
consideration thereof, the Great Western Board will advise Great Western
stockholders of its position with respect to the Ahmanson exchange offer.
Based on the closing market prices of Washington Mutual Common Stock and
Ahmanson common stock on March 17, 1997, the day that Ahmanson announced the
Ahmanson Proposal, the nominal implied value per share of Great Western Common
Stock under the Great Western/Washington Mutual Merger Proposal was $46.01 and
under the Ahmanson Proposal was $47.70. Based on the closing market prices of
Washington Mutual Common Stock and Ahmanson common stock on May 12, 1997, the
indicated value per share of Great Western Common Stock under the Great
Western/Washington Mutual Merger was $47.42 and under the Ahmanson Proposal was
$48.00.
If the Washington Mutual/Great Western Merger is not approved, there can be
no assurances that any alternative business combination would be consummated or
as to the timing or terms of any such alternative business combination.
Opinions of Financial Advisors
Lehman Brothers Inc. ("Lehman Brothers"), which is serving as financial
advisor to the Washington Mutual Board, has delivered its written opinion, dated
March 5, 1997 (the "Lehman Brothers Opinion"), to the Washington Mutual Board,
that the Exchange Ratio is fair, from a financial point of view, to Washington
Mutual. See "The Washington Mutual/Great Western Merger -- Opinions of Financial
Advisors." THE FULL TEXT OF THE LEHMAN BROTHERS OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS
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ON ITS REVIEW, IS ATTACHED HERETO AS APPENDIX B AND IS INCORPORATED BY REFERENCE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
Washington Mutual has agreed to pay fees to Lehman Brothers for its
services in connection with the Washington Mutual/Great Western Merger, which
fees were payable, in part, at the time of signing of the Merger Agreement and a
substantial portion of which is contingent upon consummation of the Washington
Mutual/Great Western Merger.
Goldman, Sachs & Co. ("Goldman Sachs") and Merrill Lynch & Co. ("Merrill
Lynch"), which are serving as financial advisors to Great Western, have
delivered their written opinions, each dated as of March 5, 1997 and March 25,
1997, to the Great Western Board to the effect that, as of such dates, and based
upon and subject to various qualifications and assumptions described therein,
the Exchange Ratio (i) in the case of Goldman Sachs, is fair to Great Western
Stockholders and (ii) in the case of Merrill Lynch, is fair to Great Western
Stockholders from a financial point of view. See "The Washington Mutual/Great
Western Merger -- Opinions of Financial Advisors." THE FULL TEXTS OF THE GOLDMAN
SACHS OPINIONS AND THE MERRILL LYNCH OPINIONS, EACH DATED AS OF MARCH 5, 1997
AND MARCH 25, 1997 AND EACH OF WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON ITS REVIEW, ARE ATTACHED HERETO AS APPENDICES C THROUGH
F, AND ARE INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
GREAT WESTERN STOCKHOLDERS ARE URGED TO READ SUCH OPINIONS IN THEIR ENTIRETY.
SEE "THE WASHINGTON MUTUAL/GREAT WESTERN MERGER -- OPINIONS OF FINANCIAL
ADVISORS."
Great Western has agreed to pay fees to Goldman Sachs and Merrill Lynch for
their services in connection with the Washington Mutual/Great Western Merger,
which fees were payable, in part, upon execution of the Merger Agreement and a
substantial portion of which is contingent upon consummation of the Washington
Mutual/Great Western Merger. See "The Washington Mutual/Great Western Merger --
Opinions of Financial Advisors."
Conditions to the Washington Mutual/Great Western Merger; Regulatory Approvals
The obligations of Washington Mutual and Great Western to consummate the
Washington Mutual/ Great Western Merger are subject to various conditions,
including, among others, obtaining the requisite stockholder approvals;
obtaining requisite regulatory approvals, as described below; the effectiveness
of the Registration Statement of which this Joint Proxy Statement/Prospectus is
a part; approval for listing on NASDAQ of the shares of Washington Mutual Common
Stock and Series F Preferred Stock to be issued in the Washington Mutual/Great
Western Merger, subject to official notice of issuance; receipt of opinions of
counsel at the closing of the Washington Mutual/Great Western Merger in respect
of certain federal income tax consequences of the Washington Mutual/Great
Western Merger; and receipt of accountants' letters to the effect that the
Washington Mutual/Great Western Merger qualifies for "pooling-of-interests"
accounting treatment.
The Washington Mutual/Great Western Merger is conditioned on obtaining all
required regulatory approvals (the "Requisite Regulatory Approvals"). The
principal Requisite Regulatory Approval is approval of the Office of Thrift
Supervision (the "OTS") under the Home Owners' Loan Act and the Federal Deposit
Insurance Act. As described under "The Washington Mutual/Great Western
Merger -- Regulatory Approvals," Washington Mutual has filed an application
seeking this OTS approval. Based on the advice of its legal advisors and its own
prior acquisition experience, Washington Mutual expects that it will be able to
obtain the OTS approval on a timely basis and without the imposition of any
condition that would have a material adverse effect on the Combined Company. See
"The Washington Mutual/Great Western Merger -- Conditions to the Consummation of
the Washington Mutual/Great Western Merger" and "-- Regulatory Approvals
Required."
Termination of the Merger Agreement
The Merger Agreement may be terminated by mutual consent of the Washington
Mutual Board and the Great Western Board. The Merger Agreement may also be
terminated by either the Washington Mutual Board or the Great Western Board (i)
if a governmental authority issues a final denial of an application with
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<PAGE> 8
respect to any of the Requisite Regulatory Approvals or issues a final order
prohibiting the consummation of the Washington Mutual/Great Western Merger, (ii)
if the Washington Mutual/Great Western Merger does not occur on or before March
31, 1998, (iii) in certain events involving a material breach by the other party
of any of its representations, warranties, covenants or agreements in the Merger
Agreement, (iv) if the requisite approval of either the Washington Mutual
shareholders or the Great Western Stockholders is not obtained at their
respective Special Meetings, or (v) if the board of directors of the other party
withdraws, modifies or changes its approval or recommendation of the Merger
Agreement. The Merger Agreement may also be terminated (i) by the Washington
Mutual Board if a tender offer or exchange offer for 25% or more of the
outstanding shares of Great Western Common Stock is commenced (other than by
Washington Mutual), and the Great Western Board recommends that the Great
Western Stockholders tender their shares in such tender or exchange offer or
otherwise fails to recommend that Great Western Stockholders reject such tender
offer or exchange offer within ten business days after the commencement thereof,
or (ii) by the Great Western Board if a tender offer or exchange offer for 25%
or more of the outstanding shares of Washington Mutual Common Stock is
commenced, and the Washington Mutual Board recommends that the Washington Mutual
shareholders tender their shares in such tender or exchange offer or otherwise
fails to recommend that Washington Mutual shareholders reject such tender offer
or exchange offer within ten business days after the commencement thereof. See
"The Washington Mutual/Great Western Merger -- Termination of the Merger
Agreement."
Pursuant to the Merger Agreement, Great Western has agreed to pay a $75
million fee (plus reimbursement for documented reasonable out-of-pocket expenses
up to $20 million) to Washington Mutual if (a) Washington Mutual terminates the
Merger Agreement because the Great Western Board withdraws, modifies or changes
in a manner adverse to Washington Mutual its approval or recommendation of the
Washington Mutual/Great Western Merger, (b) Washington Mutual terminates the
Merger Agreement because the Great Western Board either recommends a third party
tender or exchange offer for 25% or more of the outstanding shares of Common
Stock or fails to recommend that Great Western Stockholders reject such tender
or exchange offer, (c) either Washington Mutual or Great Western terminates the
Merger Agreement because the Great Western Stockholders fail to approve the
Merger Agreement, but only if at the time of such failure, an alternative
proposal to acquire Great Western has been publicly disclosed (or any person
shall have publicly disclosed an intention (whether or not conditional) to make
such an alternative proposal), or (d) Washington Mutual terminates the Merger
Agreement as a result of the willful breach by Great Western of any material
representation, warranty, covenant or other agreement in the Merger Agreement,
but only if at or prior to the time of termination, an alternative proposal to
acquire Great Western has been made known to Great Western or has been publicly
disclosed, whether or not such alternative proposal is rejected by Great Western
or withdrawn prior to the time of termination. An additional $100 million fee is
payable by Great Western to Washington Mutual if, within 18 months after
termination of the Merger Agreement under any of the circumstances described
above, Great Western enters into a definitive agreement with respect to or
consummates an alternative proposal for an acquisition of Great Western by a
third party.
The Ahmanson Proposal, if not unconditionally withdrawn prior to the
mailing to Great Western Stockholders of this Joint Proxy Statement/Prospectus,
would constitute an alternative proposal for purposes of clause (c) of the
preceding paragraph. For purposes of clause (d) above, the Ahmanson Proposal
constitutes such an alternative proposal. See "The Washington Mutual/Great
Western Merger -- Background of the Washington Mutual/Great Western Merger."
The termination fees described above, which Washington Mutual and Great
Western believe are customary and typical for transactions such as the
Washington Mutual/Great Western Merger, are intended, among other things, to
increase the likelihood that the Washington Mutual/Great Western Merger will be
consummated on the terms set forth in the Merger Agreement and, if the
Washington Mutual/Great Western Merger is not consummated under certain
circumstances involving an acquisition or potential acquisition of Great Western
by a third party, to compensate Washington Mutual for its efforts undertaken,
expenses incurred and business opportunities lost in connection with the
proposed Washington Mutual/Great Western Merger. These agreements may have the
effect of discouraging offers by third parties to acquire Great
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Western prior to the Washington Mutual/Great Western Merger, even if such
persons were prepared to offer to pay consideration to Great Western
Stockholders that has a higher current market price than the shares of
Washington Mutual Common Stock to be received by the Great Western Stockholders
pursuant to the Merger Agreement. See "The Washington Mutual/Great Western
Merger -- Background of the Washington Mutual/Great Western Merger."
Ahmanson has filed suit in the Court of Chancery of the State of Delaware
to enjoin all steps necessary for consummation of the Washington Mutual/Great
Western Merger and is challenging the termination fee described above. See
"Litigation."
Certain Federal Income Tax Consequences
The Washington Mutual/Great Western Merger is intended to qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code). Accordingly, no gain or loss will be recognized
by Great Western Stockholders or the holders of the Great Western Preferred
Stock, respectively, upon the receipt of Washington Mutual Common Stock or
Series F Preferred Stock, respectively, in exchange for Great Western Common
Stock or Great Western Preferred Stock, respectively, except with respect to any
cash received in lieu of a fractional share interest in Washington Mutual Common
Stock.
There will be no federal income tax consequences to the shareholders of
Washington Mutual as a result of either voting on the proposals described herein
or consummation of the Washington Mutual/Great Western Merger.
All shareholders should carefully read the discussion of the material
federal income tax consequences of the Washington Mutual/Great Western Merger
under "The Washington Mutual/Great Western Merger -- Certain Federal Income Tax
Consequences" and are urged to consult with their own tax advisors as to the
federal, state, local and foreign tax consequences of the Washington
Mutual/Great Western Merger in their particular circumstances.
Accounting Treatment
The Washington Mutual/Great Western Merger is expected to be treated as a
pooling-of-interests for accounting and financial reporting purposes.
Accordingly, under generally accepted accounting principles, the assets and
liabilities of Great Western will be recorded on the books of Washington Mutual
at their values on the books of Great Western at the Effective Time. If
completed as proposed, no goodwill will be created as a result of the Washington
Mutual/Great Western Merger. See "The Washington Mutual/Great Western
Merger -- Accounting Treatment."
Interests of Certain Persons in the Washington Mutual/Great Western Merger
Certain members of Great Western's management and the Great Western Board
have interests in the Washington Mutual/Great Western Merger in addition to
their interests as stockholders of Great Western generally. These include, among
other things, provisions in the Merger Agreement relating to indemnification,
the appointment of four members to the Washington Mutual Board following the
Washington Mutual/Great Western Merger and the acceleration of benefits under
certain employee benefit plans.
The seven executive officers of Great Western would become entitled to
receive benefits pursuant to the terms of certain agreements and benefit plans
in connection with a change in control of Great Western as follows: (i) if
employment is terminated under certain circumstances on or about the currently
anticipated effective date of the Washington Mutual/Great Western Merger,
severance under his or her employment agreement; (ii) within 5 days following a
change in control of Great Western, a pro-rata bonus under Great Western's
annual bonus plan; (iii) payment of amounts previously deferred under Great
Western's deferred compensation plans, with interest thereon credited at an
enhanced rate; and (iv) an annual benefit under Great Western's Supplemental
Executive Retirement Plan. The approximate amounts such executive officers would
be entitled to receive in respect of such benefits is as follows: Mr.
Maher -- $4,386,000, $351,000,
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$4,758,000 and $950,000, respectively; Mr. Pappas -- $2,160,000, $158,000,
$132,000 and $357,870, respectively; Mr. Schenck -- $2,160,000, $146,000,
$89,000 and $324,029, respectively; Mr. Geuther -- $1,920,000, $140,000,
$794,000 and $310,848, respectively; Mr. Sims -- $1,632,000, $119,000, $0 and
$39,596, respectively; Mr. Erikson -- $1,512,000, $110,000, $29,000 and
$238,252, respectively; and Ms. Studenmund -- $1,680,000, $123,000, $106,000 and
$121,864, respectively. In addition, upon the consummation of the Washington
Mutual/Great Western Merger, all then unvested Great Western Stock Options held
by such executive officers will become immediately vested and exercisable and
restricted shares of Great Western Common Stock held by such officers will
become immediately vested and free of restrictions. See "Interests of Certain
Persons in the Washington Mutual/Great Western Merger" for a more detailed
discussion of such agreements and plans and the benefits payable thereunder.
The Great Western Board was aware of these interests and considered them,
among other matters, in unanimously approving the Merger Agreement and
transactions contemplated thereby. For additional information, including amounts
payable under such employee benefit plans in certain circumstances, see "The
Washington Mutual/Great Western Merger -- Interests of Certain Persons in the
Washington Mutual/Great Western Merger."
No Appraisal or Dissenters' Rights
Under Delaware law, holders of Great Western Common Stock and Great Western
Preferred Stock (including the holders of Great Western Depositary Shares) will
have no appraisal rights in connection with the Washington Mutual/Great Western
Merger. Under Washington law, holders of Washington Mutual Common Stock and
Washington Mutual Preferred Stock will have no dissenters' rights with respect
to the Share Issuance/Merger Proposal or the Articles Amendment Proposal. See
"The Washington Mutual/Great Western Merger -- No Appraisal or Dissenters'
Rights."
MANAGEMENT AND OPERATIONS OF WASHINGTON MUTUAL FOLLOWING THE
WASHINGTON MUTUAL/GREAT WESTERN MERGER
At the Effective Time, Great Western will merge with and into NACI (which,
as of the Effective Time, will be a direct, wholly owned subsidiary of
Washington Mutual), with NACI as the surviving corporation. NACI will be, at the
Effective Time, the direct parent company of ASB. It is intended that, as soon
as practicable after consummation of the Washington Mutual/Great Western Merger,
GW Bank and ASB will merge (the "Bank Merger") and that the name of the
surviving corporation will be Great Western Bank.
At the Effective Time, four representatives mutually agreeable to
Washington Mutual and Great Western will be added to the existing Washington
Mutual Board to form the Board of Directors of the Combined Company. While there
are no agreements, arrangements or contracts to appoint any specific person to
the Washington Mutual Board, it is expected that John F. Maher, the President
and Chief Executive Officer of Great Western, will be one of the four
representatives of Great Western chosen to serve on the Board of Directors of
the Combined Company.
Washington Mutual intends to consolidate the branch systems and loan
offices of ASB and GW Bank in California and the loan offices of WMB and GW Bank
in Washington. It is anticipated that approximately 100 branches (in addition to
the seven branches already scheduled for closure by Great Western) and 100 loan
offices (including 38 loan offices already scheduled for closure by Great
Western) will be closed. Washington Mutual also intends to consolidate certain
administrative functions. Initial branch and loan office consolidations will
occur in 1998. It is anticipated that further branch and loan office
consolidations, back office consolidations and efficiencies will be achieved in
1999. These consolidations, together with cost reductions which result from the
introduction of Washington Mutual's loan origination system and an integrated
data/communications system throughout the GW Bank branches and other steps, are
expected to achieve annual operating cost savings of approximately $208 million
and $340 million (pre-tax) in 1998 and 1999, respectively.
In addition, Washington Mutual believes that the Washington Mutual/Great
Western Merger should provide opportunities for significant revenue enhancements
for the Combined Company. Washington Mutual
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anticipates increased asset growth through additional production and retention
of residential mortgage and consumer loans as portfolio loans (based on
leveraging of the additional capital made available as a result of the
Washington Mutual/Great Western Merger and the introduction of new loan products
and systems at GW Bank). It is estimated that this strategy will increase
pre-tax net interest income in 1999 by approximately $246 million, although this
strategy will cause a decrease of $5.0 million in gain on sale of loans in 1999.
In addition, Washington Mutual estimates additional pre-tax fee income in 1999
of approximately $88 million may be obtainable primarily as a result of
implementing Washington Mutual's pricing policies and products throughout the GW
Bank branch network. The projected revenue enhancements are in addition to the
revenue levels projected in current First Call estimates of future earnings of
Great Western on a stand alone basis and do not include any potential increases
over First Call estimates for Washington Mutual on a stand alone basis.
Merger-related expenses of approximately $343 million (pre-tax) are
expected to be recorded by Washington Mutual at the Effective Time. This charge
includes the creation of reserves of $145 million for severance and management
payments (which includes all payments anticipated to be payable under all Great
Western severance plans, including the broad-based severance plan adopted in the
first quarter of 1997), $106 million for facilities and system conversion
related expenses and $92 million for other transaction costs.
Washington Mutual also intends to provide an additional $100 million in
loan loss provisions as a charge to earnings at the Effective Time. This
additional loan loss provision is being provided because Washington Mutual's
plan for managing certain of the loans in Great Western's portfolio which were
originated between 1989 and 1993 differs from Great Western's and therefore
requires a different level of reserves. See "Management and Operations of
Washington Mutual Following the Washington Mutual/Great Western Merger."
The estimates of cost savings, revenue enhancements and merger-related and
other expenses described above are forward-looking statements that, while
prepared on the basis of Washington Mutual's best judgments and currently
available information regarding Great Western's business and the future
operating performance of the two companies, are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the control of either company, and upon assumptions
with respect to future business decisions that are subject to change.
Accordingly, there can be no assurance that such cost-savings and revenue
enhancements will be realized in the amounts or within the time periods
currently estimated or that such charges for merger-related expenses will be
sufficient. See "Risk Factors."
See "Management and Operations of Washington Mutual Following the
Washington Mutual/Great Western Merger."
DESCRIPTION OF WASHINGTON MUTUAL CAPITAL STOCK
Upon consummation of the Washington Mutual/Great Western Merger, holders of
Great Western Common Stock will become holders of Washington Mutual Common
Stock. Holders of shares of Washington Mutual Common Stock are entitled to one
vote per share for each share held. Subject to the rights of holders of shares
of the outstanding Washington Mutual Preferred Stock, holders of shares of
Washington Mutual Common Stock have equal rights to participate in dividends
when declared and, in the event of liquidation, in the net assets of Washington
Mutual available for distribution to shareholders. Washington Mutual may not
declare any dividends on the Washington Mutual Common Stock unless full
preferential amounts to which holders of the Washington Mutual Preferred Stock
are entitled have been paid or declared and set apart for payment. Washington
Mutual is also subject to certain regulatory restrictions on the payment of
dividends.
Each share of Washington Mutual Common Stock currently has attached thereto
a stock purchase right (a "Washington Mutual Right") issued under the Washington
Mutual Rights Plan.
Upon consummation of the Merger, holders of Great Western Preferred Stock
will become holders of the Series F Preferred Stock, which has substantially
identical terms, limitations, privileges and rights as the Great Western
Preferred Stock.
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For additional information concerning the capital stock of Washington
Mutual and certain differences between Washington and Delaware corporate laws,
see "Description of Washington Mutual Capital Stock" and "Certain Differences
Between Washington and Delaware Corporate Laws."
[LEFT BLANK INTENTIONALLY]
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EXHIBIT 13
THE AHMANSON CONSENT SOLICITATION. On March 3, 1997, Ahmanson commenced
the Ahmanson Consent Solicitation and sought consents from Great Western
stockholders to approve five proposals. That same day, pursuant to Great
Western's By-laws, the Board fixed March 13, 1997 as the record date for these
five proposals. On March 17, 1997 (concurrently with the announcement of the
Revised Ahmanson Merger Proposal and subsequent to the announcement of the
Washington Mutual Merger), Ahmanson withdrew two of the five proposals and
commenced a solicitation of consents for two new proposals (the "New Ahmanson
Consent Proposals"), in addition to proposals 3, 4 and 5 of the Ahmanson Consent
Solicitation as originally commenced. To date, Great Western has not received a
request from Ahmanson to fix a record date with respect to the New Ahmanson
Consent Proposals and, accordingly, no such record date has been so fixed. See
"LITIGATION."
On April 9, 1997, Ahmanson presented to the Company consents which Ahmanson
claimed represented consents from a majority of the outstanding Common Shares
for adoption of three of the five Ahmanson proposals. One of the proposals for
which Ahmanson presented consents would amend the Company's By-laws to require
that the Company's annual meeting of stockholders be held on the fourth Tuesday
in April or within two weeks thereof (the "Annual Meeting By-law"). This year,
the fourth Tuesday in April was April 22, 1997 and the fourteenth day thereafter
was May 6, 1997. On April 11, 1997, Ahmanson presented to the Company consents
which Ahmanson claimed represented consents from a majority of the outstanding
Common Shares for adoption of one of the two New Ahmanson Consent Proposals.
The consents presented by Ahmanson and the revocations of consent received
by Great Western were turned over to independent inspectors of election. After
the independent inspectors reported the results of their preliminary tabulation
as of April 9 with respect to proposals 3, 4 and 5 of the Ahmanson Consent
Solicitation, which indicated that those proposals had been adopted, Great
Western identified a voting irregularity involving the double voting of more
than five million Common Shares held by a major institutional stockholder. That
stockholder promptly sent a letter to the independent inspectors stating that
approximately 5.2 million of its shares "represent a duplicate vote" and
requesting that such duplicate vote be disregarded. Ahmanson insisted that the
independent inspectors were not authorized to take cognizance of the letter from
the major institutional stockholder and that the shares be counted twice. The
independent inspectors took the position that they were not empowered to address
the double vote issue. On April 28, 1997, the independent inspectors certified
that Ahmanson had received consents representing a majority of the outstanding
Common Shares with respect to proposals 3, 4 and 5 as of April 9, 1997. On that
same day Great Western filed suit in the Court of Chancery of the State of
Delaware seeking an order declaring, among other things, that there was an
overvote entitling the independent inspectors to consider extrinsic evidence
concerning the double-voted shares. See "LITIGATION." On May 1, 1997, Great
Western and Ahmanson each requested that the independent inspectors retabulate
the vote without giving effect to the double-counted shares and recertify the
results of the Ahmanson Consent Solicitation. On May 5, 1997, the independent
inspectors completed a second tabulation regarding certain of Ahmanson's
proposals, certifying that, as of April 9, 1997, Ahmanson had received consents
representing a majority of the outstanding Common Shares with respect to
proposal 3. Also, on May 5, 1997, the independent inspectors reported on a
preliminary basis, and are expected to certify shortly, that Ahmanson received
unrevoked consents representing a majority of the outstanding Common Shares with
respect to proposals 4 and 5 as of April 10, 1997.
In light of the dispute between Great Western and Ahmanson as to whether a
record date exists with respect to the New Ahmanson Consent Proposals, the
independent inspectors have not tabulated the results of the solicitation with
respect to such proposals. Under Great Western's By-laws, any stockholder of
Great Western seeking to have Great Western's stockholders authorize or take
corporate action by written consent must, by written notice to Great Western's
Secretary, request that the Board fix a record date. The Board is then required,
within ten days after the date on which such request is received, to adopt a
resolution fixing the record date. Under Section 213 of the Delaware General
Corporation Law ("DGCL") and Section 11 of Great Western's By-laws, the record
date must be within ten days of the date of the resolution fixing the record
date. Ahmanson has never requested the setting of a record date with respect to
the New Ahmanson
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Consent Proposals. Pursuant to the Company's By-laws, a record date will be
fixed by the Board upon Ahmanson's written request that such a date be fixed.
Even though the independent inspectors certified on May 5, 1997 that, as of
April 9, 1997, consents from a majority of the outstanding Common Shares have
been presented to the Company with respect to the Annual Meeting By-law, Rule
14a-13 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company to disseminate broker search cards at least 20
business days prior to the record date for the Annual Meeting and New York Stock
Exchange rules recommend that a listed company, such as Great Western, allow a
minimum of 30 days from the record date to the stockholder meeting date for the
solicitation of proxies. Therefore, in light of the relevant timing constraints,
rules and regulations governing the Company and practical considerations
relating to the time required for dissemination of proxy materials to beneficial
owners of Common Shares, the time required for the solicitation of proxies as
well as the time necessary to permit meaningful deliberation by holders of
Common Shares and the return of proxies by both record and beneficial owners of
Common Shares, on April 10, 1997 the Board scheduled the Annual Meeting for June
13, 1997 and fixed May 9, 1997 as the record date for holders of Common Shares
entitled to receive notice of and to vote at the Annual Meeting (the "Record
Date"). On April 9, 1997, Ahmanson filed a Complaint in the Court of Chancery of
the State of Delaware seeking an order compelling Great Western to hold the
Annual Meeting on or before May 6, 1997. See "LITIGATION." On May 8, 1997,
Ahmanson publicly announced that it would no longer seek to advance the date of
the Annual Meeting.
[LEFT BLANK INTENTIONALLY]
2
